Oil Climbs Down From Precipice As Us Crude Reserve Release ‘on The Table’

Oil prices retreated from the four-year highs hit overnight, but the grim outlook in the energy markets has put the White House in a tough spot on whether to approve the release of U.S. strategic oil supplies.

News early Monday that the United States and other G7 countries were discussing a possible coordinated release of oil from their strategic petroleum reserves halted a panic-driven market spike that briefly pushed U.S. oil to nearly $120 a barrel overnight. Still, the dramatic run-up in crude prices since the U.S. and Israel started their attacks against Iran just over a week ago continues to threaten the global economy, analysts warn.

The White House is mulling releasing oil from the Strategic Petroleum Reserve but so far has not made a formal decision, a person familiar with the administration’s discussion said Monday morning.

“It’s on the table,” said the person, granted anonymity to discuss private discussions, of an SPR release. “But there is pretty fierce opposition to tapping SPR — it’s a half measure at best. The focus of the messaging is to emphasize the current run-up in global oil prices is temporary.”

Administration officials who oppose tapping the reserve say a release wouldn’t solve what they consider the underlying problem: the fact that Iran’s retaliation against U.S. and Israeli military strikes against it have included attacking oil tankers in the Strait of Hormuz. That has nearly frozen traffic in the waterway traversed by ships carrying 20 percent of the world’s waterborne crude.

Energy Secretary Chris Wright has been making that argument, telling FOX News Sunday “It's just fear and perception” causing the run-up in oil prices.

"The world is abundantly supplied with energy, thanks to President Trump's energy dominance agenda,” Wright said. “The United States is a net exporter of oil, net exporter of natural gas. We're in contact with our allies. This is a disruption on the way to a much better place to end a 47-year war against America."

A White House spokesperson did not immediately provide a comment.

Some market analysts aren’t quite so sure, however. Besides the problems at Hormuz, energy traders are looking at oil production shutdowns in Iraq and Kuwait as well as Qatar’s halting of natural gas exports. Iranian attacks have also damaged refineries around the Persian Gulf, and China has ordered its fuel-makers to stop exporting gasoline and diesel to shore up its fuel supply.

“Markets are rapidly repricing the crisis as a real supply disruption rather than a temporary logistics issue,” analysts at Spartan Commodities said in a Monday morning note to clients.

The economic fallout from a surge in oil prices above $100 a barrel is expected to begin showing up in everything from gasoline prices at the pump to groceries that require fertilizer, analysts said. U.S. airline and freight companies have seen their stock prices tumble over the past week as investors worry increased fuel bills will erode profits. Stock indices in the United States, Japan and South Korea all plunged Sunday as investors worry about a potential oil shock.

The jump in oil prices is also complicating the decision making at the Federal Reserve Board as it tries to decide its next move on interest rates next week. Rising energy prices could convince the Fed to keep rates up to fight inflation, while the weak February employment numbers would make a case for lowering borrowing costs.

In all, what the market wants is the one thing President Donald Trump hasn’t given: a clear end date for the administration’s war against Iran, analysts say.

Clayton Seigle, senior fellow at Center for Strategic and International Studies, said in a Saturday email update that restoring Gulf oil and gas exports is "must have" for both U.S. and global economies.

"The grace period given by the market to the Trump Administration expired at the end of last week," Seigle said. "A deficit of 20 million barrels per day is hitting global balances with no sign of relief. To the contrary, President Trump is demanding unconditional surrender, a very unlikely prospect. While observers may have initially thought his disregard for painful oil prices was a bluff, it's now clear that it isn't."

James Bikales contributed to this report.