In a recent press conference, as the price of oil tanked on international markets due to the Chinese coronavirus outbreak and the market share war between Russia, OPEC, and American shale oil, POTUS declared he would replenish the Strategic Petroleum Reserve (SPR).

“We’re going to fill it right up to the top, saving the American taxpayer billions and billions of dollars, helping our oil industry [and furthering] that wonderful goal — which we’ve achieved, which nobody thought was possible — of energy independence,” declared the president.

The silver lining in the economic downturn is the federal government can replenish the reserves at a very low price, giving America the ability to reduce the impact of oil price shocks in the future. At printing of this article, Brent crude is trading barely with a $30 handle.

"Trade wars are likely to resume on the oil market in April," Chief Analyst at BCS Premier Anton Pokatovich said. Saudi Arabia plans to increase its oil output instead of reducing it and is already offering significant discounts to customers in Europe, Asia and the US. The situation is very tense, Skolkovo Energy Center expert Yekaterina Grushevenko pointed out. According to her, global oil supply may grow by 2-3.9 bln barrels a day depending on Saudi Arabia’s strategy, wrote Russian state news agency TASS.

It is a stretch to say that Moscow and Riyadh are in any sort of cooperation to try and reduce U.S. oil production; the body language at the Vienna meeting strongly suggests otherwise. But if a price war results in some U.S. casualties and a greater reluctance by investors and lenders to fund future U.S. marginal production, then Moscow and OPEC will be relieved, reported The Moscow Times.

When this price war will abate is anyone's guess, who knows who will blink first. The situation will definitely negatively effect American shale producers; however as we have written before, the cost to shut down current fracking wells is negligible as compared to legacy producers. The real issue is debt level; those with high debt service costs could go under.

The SPR is an engineering marvel in itself.

The Strategic Petroleum Reserve (SPR), the world's largest supply of emergency crude oil, was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program. The federally-owned oil stocks are stored in huge underground salt caverns at four sites along the coastline of the Gulf of Mexico. The sheer size of the SPR (authorized storage capacity of 713.5 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy, writes the Department of Energy on its website.

The physical structure of the reserve is fascinating.

Emergency crude oil is stored at the Strategic Petroleum Reserve (SPR) in underground salt caverns at four major oil storage facilities in the Gulf Coast region of the United States, two sites in Texas (Bryan Mound and Big Hill), and two sites in Louisiana (West Hackberry and Bayou Choctaw). Created deep within the massive salt deposits that underlie most of the Texas and Louisiana coastline, the caverns offer the best security and are the most affordable means of storage, costing up to 10 times less than above ground tanks and 20 times less than hard rock mines, again writes DOE.

Strategic Petroleum Reserve caverns range in size from 6 to 37 million barrels in capacity; a typical cavern holds 10 million barrels and is cylindrical in shape with a diameter of 200 feet and a height of 2,500 feet. One storage cavern is large enough for Chicago's Willis Tower to fit inside with room to spare. The Reserve contains 60 of these huge underground caverns. These four sites have a combined authorized storage capacity of 713.5 million barrels.

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