We Don't Need Strategic Petroleum Reserve: Verleger

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March 20 (Bloomberg) -- Philip Verleger, founder and president of PK Verleger, discusses U.S. sanctions on Russia and the impact of selling oil from the Strategic Petroleum Reserve with Alix Steel on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

The oil world -- the world oil price would drop by $10 to $12 per barrel.

Thank you for joining us on this topic.

Explain to me this thought process.

How did you arrive to this conclusion?

The president said that he wanted to impose meaningful sanctions on russia.

And russia's primary source of hard currency earnings come from sales of oil and sales of natural gas.

And then natural gas prices russia receives are tied to the price of oil.

If the price of oil goes down, russia suffers.

And a $10 decline in the price of oil cuts roughly $40 billion from their export earnings.

It probably trims gdp by 2%. russia needs about $110 per barrel in order to keep making money.

Why not just export all the oil that we have here?

I know you can't do that right now, but in a couple years.

One, space limitations in any op-ed prevent you from listing everything.

I know the feeling.

I would also list export restrictions.

One wants to do something now, not two years from now.

One analogy i've used is to land leases before world war ii.

Fdr least a number of old destroyers to the u.k. -- fdr leased a number of old destroyers to the u.k. he could've said, we will build you knew destroyers, -- new destroyers, in two or three years, they will be delivered.

Time is of the essence.

We have the strategic reserves.

We don't need them anymore.

30 years ago, we did.

The united states announced a test sale of the strategic reserve, the first sale since 1990 when george bush did it after iraq invaded kuwait.

The international agency -- energy agency issued a press release that says the united states has 204 days of inventory covering that imports.

It is only required to have 90. it could sell a lot of oil.

Unless you have full support from the obama administration, even if the u.s. did release some of its oil, at some point, it has to buy it again, which would also influence the price to move up.

That's the mistake everybody inmakes.

We don't have to buy it anymore.

The strategic petroleum reserve is superfluous.

We needed it five years ago, four years ago when our imports weren't so high, but thanks to the success of fracking and of natural gas and conservation, we could sell the whole strategic reserve off now.

We do not need any of that oil.

And in fact, we will.

Based on the sale, it is worth about $70 billion or $80 billion and the government could use that money.

We could sell it, don't have to buy it back.

The other point is merely allowing exports wouldn't do anything to the global supply and demand situation.

The supply remains the same am a so the price remains the same -- the supply remains the same, so the price remains the same.

What kind of international cooperation would you need?

In essence, a lot of oil-producing companies would have to be lower -- ok with lower prices if the u.s. did this.

We need the cooperation of one country, saudi arabia.

Saudi arabia right now is at loggerheads with russia over syria.

And at loggerheads with russia over iran.

So, the country that probably would really like to see lower world oil prices to squeeze russia is saudi arabia.

I think if the united states were to take this step, the saudis would quietly say thank you, they might even boost their own production a little bit.

For once, the united states has taken a step that they really approve of.

They are very unhappy with us since we refused to bomb syria after syria used the chemical weapons.

This would strengthen our hand with the saudis.

The thing saudi arabia would have the ability to be the -- to do this -- do you think saudi arabia would have the ability to do this on its own, to put the squeeze on russia?

The saudis don't ramp up their production directly.

They said discounts or premiums to world prices when they sell their oil.

They can go out and offer more oil at larger discounts to their buyers.

We may hear that in the first week of april, to help do this.

I think that the saudi's would really like -- the saudis would really like to see us do this.

We do not need the 700 million barrels we have in the strategic trolling reserve anymore -- strategic petroleum reserve anymore.

I know you have been a big proponent of ending the petroleum reserves for a while.

What kind of support have you found in the obama administration?

What was the reaction?

I move from washington out to colorado.

I've heard very little.

Quietly, i know they thought about it as the tool -- a tool to raise revenue, but it really has not, till now, reached the top.

Last week, they did a test sale.

The only reason they did the test sale, i'm certain of, it was trying to send a signal to russia that, yes, we have this technique.

The sales knocked about four dollars or five dollars -- about $4 or $5 off of international crude.

The last question, what is the oil community saying?

I can't imagine they want all this oil released.

You hear various statements.

One of the things is everybody realizes it has to be sold sometime.

It depends where they are.

Refiners would love it.

They would definitely like that difference.

Oil producers, not so much.

If they approve exports with this, the oil producers would embrace this as a good idea.

Philip verleger, thank you so

This text has been automatically generated. It may not be 100% accurate.

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