Is the U.S. Using Oil to Fight Russian Gas Politics in Ukraine?
The U.S. appears to be building pressure on Russia over its actions in Ukraine by releasing crude oil from its emergency stockpile onto the market, with news of a “test sale” causing oil prices to dip to their lowest levels in a month.
The U.S. announced yesterday that it would hold the first test sale of crude from its strategic reserve since 1990, releasing 5 million barrels onto the market — just enough to send a message to Russia, whose economy depends on high oil prices. U.S. crude oil fell by more than 2 percent on Wednesday, its biggest drop in two months, on the news.
The White House said it did not associate the release with the crisis in Crimea, while the U.S. Department of Energy claimed that it had been planning the strategic oil release for months. However, the timing of the release — as Ukraine faces a threat from Russia and as Russia takes control of Ukraine’s Crimea peninsula — leaves traders unconvinced.
“The U.S. is well supplied,” Mark Routt, a senior energy consultant at KBC in Houston, told reporters. “In terms of crude stocks, there’s little reason for [the sale] unless it was operational or for some other technical reason.” Michael Wittner, head of global oil research at Société Générale in New York, told the Financial Times that, “The timing of this makes it seem like a warning shot across the bow towards the Russians.”
In an interview with Oilprice.com yesterday, Ukrainian former Vice Prime Minister Yuri Boyko noted that gas was the biggest weapon in Russia’s arsenal, but while Ukraine and other Central European governments are pleading for U.S. natural gas exports to offset Russian gas, the DOE’s oil announcement yesterday came as a surprise.