OIES Podcast – Strategic Petroleum Reserve Strategy: risk-free return or return-free risk?
In this podcast David Ledesma discusses with Ilia Bouchouev the latest developments related to an unprecedented release of the U.S. Strategic Petroleum Reserve. They set the stage by describing the mission of the SPR and how its recent usage compares to previous episodes. An important distinction is made between SPR loans and SPR sales. They look at the SPR strategy from the perspective of the commercial storage manager. While a SPR loan is effectively an arbitrage strategy that generates returns with little risk, SPR sales are much more speculative as the outcome is highly dependent on future market prices. They debate the success of the current program and discuss its latest developments, including the cancellation of previously Congress-approved sales and the pilot program to buy barrels back in the market. They conclude with some thoughts on the optimal management of such a program.