January 29, 2019 / 9:30 PM / 3 months ago

UPDATE 1-U.S. weighs oil release as it tightens vice on Venezuela -source

(Adds oil market comment from Energy Department)

WASHINGTON, Jan 29 (Reuters) - The Trump administration is considering tapping the U.S. emergency reserve of crude as it imposes new sanctions on Venezuela's oil business, but no decision has been made, a U.S. government source said on Tuesday.

The administration on Monday imposed sweeping sanctions on Venezuela's state-owned oil company PDVSA, aimed at pressuring socialist President Nicholas Maduro to step down.

The Strategic Petroleum Reserve, a series of underground caverns on the coasts of Louisiana and Texas, currently holds 649.1 million barrels of crude, about 396 million of which is classified as sour oil, the rest being sweet. Sour has more sulfur in it and requires more processing.

A release is likely not imminent, but the reserve's role is often a consideration when the administration looks at the global oil market balance, as it holds more oil than required under international agreements, said the government source, who spoke on condition of anonymity.

Under law, the Department of Energy can do a test sale of up to 5 million barrels, or larger releases to loan oil to refiners, while the president can order drawdowns to counter severe supply interruptions.

But the reserve mostly lacks the kind of heavy oil supplied by OPEC member Venezuela and used by PDVSA's U.S. refining arm Citgo, Valero Energy Corp and Chevron .

In coming months the Energy Department could announce a sale of oil from the reserve, mandated by laws signed by former President Barack Obama to fund the federal government and a medical program. Last year the department held two such sales, releasing about 18 million barrels.

An energy analyst discounted the effectiveness of using the reserve as a way to protect against any price spikes.

"I'm not sure a mandated sale or even a new auction really helps the refiners affected, an auction would just price up the oil," said Joe McMonigle, senior energy policy analyst at Hedgeye in Washington.

U.S. Energy Secretary Rick Perry said in late September ahead of congressional elections and the reimposition of sanctions on Iran that the administration was not considering a release from the reserve, and that a release would have a "fairly minor and short-term impact."

Dan Brouillette, the Energy Department's deputy secretary, said on Twitter his agency was confident energy markets will remain supplied despite reduced imports of Venezuelan oil. "Over the next few years, global oil supply is expected to exceed demand & U.S. production is forecasted to increase an all-time high of 12M barrels per day," he said.

Analyst Kevin Book of ClearView Energy Partners said if the sanctions forced U.S. refiners to look for other sources they could likely get some of the oil from Canada.

A spokesman for the National Security Council said the administration would not comment on deliberations about Venezuela. The Department of Energy did not comment.

Reporting by Timothy Gardner; additional reporting by Humeyra Pamuk Editing by Alistair Bell and Rosalba O'Brien

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