Peter Beutel, an analyst with energy risk management firm Cameron Hanover, downplayed the impact that Obama's SPR release would have on oil prices. Beutel said that 70 million barrels represent only about three-and-a-half days of U.S. fuel consumption and would have a limited impact on prices, driving them down by $5 to $10 a barrel.
However, Beutel also suggests that the government could have a dramatic impact on consumer prices if it sells its oil at a substantially lower price to the refineries - in a type of deal known as a "netback."
In netback deals, the price of crude is calculated by subtracting the costs of refining, marketing, and transportation, along with profits, from the market price of the end products.
"If he sells it under a netback deal, it would fall under $100 [a barrel] very quickly, and maybe under $80," said Beutel. That kind of reduction could lead to a decline of up to 80 cents per gallon of unleaded gasoline.
Fadel Gheit, a senior energy analyst for Oppenheimer, projected a more dramatic reduction in oil prices, noting that Obama's SPR plan could "cut prices in half."
Gheit said that prior releases from the SPR during the administrations of former Presidents Bush and Clinton during the 1990s were "knock-out punches" that caused oil prices to drop dramatically. He said that to maximize the impact, which is primarily psychological, Obama should not provide hard numbers to make it harder for speculators to project future prices.
"We should not have a limit on what we will release," said Gheit. "That is the best way to keep speculators off balance."
