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6May,2017
Oil prices gyrate amid geopolitical concerns
And we have to thank Gulf nations for SPR. Going back to the 1973 oil crisis, the Arab nations conspired to place an oil embargo which froze out oil entering the US and Europe, destabilizing Western economies. As a result, Uncle Sam created the SPR to counter any such moves in the future. SPR is like an insurance policy. When hurricane Katrina ravaged the Gulf of Mexico in 2005 affecting the domestic oil production, there was SPR to fall back on. The same happened in 1991 during Operation Desert Storm. If, for some reason, the price of oil skyrockets, the SPR will serve like a sort of ambulance, easing the economy till the oil price stabilizes.

What you read as US "stockpiles" or "crude inventories" is nothing but SPR. SPR has 90 days worth of oil which can be released during a crisis and allow ambulances and emergency services to still function.

Whats happening right now is where we concentrate. Currently inventories in the US are climbing and climbing up to scale record highs. Analysts predicted a 2.8 million barrel increase but with an increase of 5 million barrels in crude supplies, the stockpile stands at 533.4 million barrels on April 12, a level unseen since the cold war in 1982. There is no shortage of oil and the stock pile continues to rise as the temperature of the world. We have to point out that 533.4 million barrels is a lot of crude even with the present demand and consumption levels.

Alongside domestic production, imports too contributed to the uptick in crude oil inventories. The status quo will remain in spite of Saudi Arabias decision to cut exports to the US. Crude exports from the Kingdom to the US are set to fall by at least 300,000 barrels per day. That ought to be bullish as the stockpile would be affected. Yet, the cut in imports would just be seasonal phenomenon as we are confident the exports will pick up by early May. Even if any Gulf country dares stop oil exports to the US, other supply-side competitors will happily fill the gap - more on this later.

At present, the oil market remains volatile. This comes at a time when defense budget is being increased by the Trump administration. A simultaneous increase in military spending and a buildup in strategic petroleum reserve are neither coincidental nor surprising. This follows the current administrations doctrine of a strong military as a cornerstone of foreign policy.

Oil production increase in the US
A few years back there was a common understanding among oil and gas analysts that if oil prices fell below the $60 mark it would strangulate the shale oil industry. Back then, the break-even price for shale oil production was around $70/barrel. Today, the ground reality has proved to be markedly different. Assuredly, oil production in the US has soared from 8.45 million barrels per day to 9.1 million barrels per day, about the same as what Saudi Arabia produced in February. What happened? Did shale extraction become cheaper in a matter of months? In a way, yes, fracking has become less expensive thanks to automation and innovation. American ingenuity does not simply give up - oil producers have not remained entirely idle during the 2015-2016 period of depressed oil prices. Instead they went back to the drawing board to cut costs and are now back with a vengeance. Thats right, shale producers have learnt to walk the tightrope managing productivity while saving costs.

We are confident in our forecast that domestic oil production is set to climb given current oil prices. Oil production will break the high of the seventies very soon. Indeed, the number of rigs in the US has been a sort of marker for the times to come. The US rig count increased with an addition of 21 rigs, taking the number to 789 rigs, according to Baker Hughes. Coming to the nitty-gritties, oil rig count stood at 631 with an increase of 14 rigs, while the natural gas rig count was at 157 with a rise of six rigs, as on March 17. The rise in rig count is for a 9th straight week. In other words, rig counts have withstood the volatility in oil prices.

Syrian air strikes
The US recently launched cruise missiles against Syrian government bases. Officially, the stated motive was a reaction to the chemical attack on Syrians by President Assad forces. Whats the real story?

Lets keep in mind that there is the proposed Qatar-Turkey Pipeline to duct natural gas from Qatars South Pars field, the worlds largest Natural Gas Field, to Europe. The plan was jointly supported by Qatar, Saudi Arabia, the US and Europe. Strategically it would have helped Europe avert Russias plan to corner its gas supplies. However Qatars pipeline would have to transit through Syria. But president Assad, backed by Russia, could not host in Syria a pipeline competing with Russias monopoly on European supplies. Assad became a threat to Qatars and Saudi Arabias European ambitions. And so Gulf states - as they usually do - funneled Islamic fighter into Syria starting in 2014 to overthrow Assad. Thus the bloody Syrian civil war was born.

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