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Brian M

So, if I understand the plan... the IEA releases roughly 2mpd (probably at something like $80-90/barrel) for 30 days, which the Chinese, Asians, and growing non-OECD countries buy up either for their own SPRs or to fuel their growth (after all, the combination of growing economies and large sovereign wealth funds means they can still outbid the OECD). 30 days later, absent the Saudis actually adding 1-2mbd, we are back where we started. Basically, it's like a 30-day 10% off sale for the Asians.

Of course, the lower oil price would tend to build pressure in OPEC to cut production to restore the higher price point. What guarantee is there that the KSA is actually going to increase production with lower prices when they didn't do it with higher prices? None.

In one of the releases I read that part of this was to address a "temporary" shortage of light sweet crude. However, my understanding is that the majority of any marginal increase from the KSA is probably not light sweet. So, once the increased light sweet from the SPR is shut off, where is the replacement? Magically restored production in Libya? Seems unlikely on that time frame.

Moreover, how does this really stop the speculation? Doesn't it just push it out (sort of the opposite of the way the home buyers credit pulled forward demand)? They may have to temporarily reverse their positions in order to cover, but they would have to think this is temporary and that it would simply result in a bounce sometime after the increased supply is withdrawn. Absent evidence that KSA is actually making meaningful increases (and that the rest of OPEC is maintaining their essentially full production), wouldn't this just cause a minor re-shuffling of the portfolios? In fact, if they expect a bounce, might you not see them buy the dip and offset some of the expected price drop?

This seems like an almost complete public relations move, with the added consequence that people will probably get hit with a price increase in the fall.

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