US responds to oil price crash by topping off the tank

Guest “thank you Mr. President” by David Middleton

MARKET PULSE
Trump says U.S. to buy oil to fill up the Strategic Petroleum Reserve
By Myra P. Saefong
Published: Mar 13, 2020

President Donald Trump announced Friday that the U.S. will buy large quantities of oil to fill the country’s Strategic Petroleum Reserve. “We’re gonna fill it up. It’s a good time to fill it up,” Trump said at a press conference, during which he declared a national emergency to access additional aid to cope with the spread of COVID-19. As of March 6, the SPR held a total of 635 million barrels of crude oil. Its current storage capacity is 713.5 million barrels.

[…]

Market Watch

SPR Quick Facts

I don’t know how quickly DOE will fill up the SPR. With about 78.5 million barrels (bbl) of available capacity, they could absorb 250,000 bbl/d of excess production for about 10 months. Russia and Saudi Arabia (mostly the Saudis) reportedly will be increasing production by about 3-3.5 million bbl/d. Totally offsetting that would fill the SPR in less than 1 month. This already appears to have had a stabilizing effect on prices.

The SPR can be drawndown at a maximum rate of 4.4 million bbl/d. The US currently imports close to 1 million bbl/d from Russia and Saudi Arabia. The US could consider suspending imports from OPEC+ (~2 million bbl/d), replacing it with domestic production and SPR releases. This would have a more significant effect on prices, allowing us to “hit back” a bit.

133 thoughts on “US responds to oil price crash by topping off the tank

    • I suggested this last Monday:
      It took him all week to see my Tweet and do what I recommended within minutes of finding out about it.
      But he did not go far enough.
      We should buy up all excess production, double the SPR if needed. Get started on hollowing out more salt domes pronto. Triple it if we can.
      Then sell some whenever the price gets so high it hurts the economy.

      https://twitter.com/NickMcGinley1/status/1237002231435665408?s=20

      • Nicholas, I’m trying to think of ways by which this would be a bad idea; I’ve failed, so far.

        I like it! My vote would be to press ahead, post-haste, with such plans. [Keep them brain wheels turning.]

        Note: In the meantime, sadly, I am confident that there are those in our Fed Govt, and elsewhere, such as in the private sector, who have already thought long and hard about such plans — and, most likely, several more like it — however, in AZZ-backwards DC, where NOTHING is done unless there is a strong POLITICAL MOTIVATION — read: the “right people” are getting their slice of the pie — almost all GOOD plans such as this … have ZERO CHANCE!

        This way of operating — where the desired result is that such “good plans” rarely see the light of day — will remain SOP … until WE The People, in much greater numbers, DEMAND MORE of our elected representatives … that is, for such reps to act contrary to the “instructions” from our DC Swamp … where such demands start with voting out of office the unholy number of JUDAS politicians.

        • the way in which it becomes a bad idea is that it embiggens a potential power tool of a central government that already has too much more power.

          Given a Bernie with a dem house/senate scenario, it could (would) be abused in some way.

          Regardless, the reserve is too small and its max should be increased anyway (increasing the max also sends a reality message … oil is important and it is not going away.)

      • It takes approximately 16-18 months to create a salt dome well. if to try to complete this quicker you can create an issue that could cave in the well. salt dome wells usually have a 2500 ft cap before they begin creating well. When you look at maps of the SPR sites, you will see this would include buying more land, expanding fence and security. If you look at the site near west side of baton rouge you will see what happens with a quick well construction.

    • Should president put import restrictions on foreign-produced oil?
      or maybe President should forbit all oil imports?

      • At $50/bbl, we can’t produce enough oil to cover our consumption and most of our imports are from Canada and Mexico. A ban on all foreign imports would be worse than doing nothing.

    • Unlike Carter durning his term we were short of oil. Carter solution was to fill the reserve and tax the oil companies.

  1. Stopped clock time, Mr. Middleton. I agree 100%. Would you please explain why he wanted to do the exact opposite a month ago? I suppose that it’s arguable that the $10 decrease in oil price, and a wake up, convinced him….

    • Markets hates instability and uncertainty. They need some level of very real risk to function properly though. Risk comes with rewards and also failures. Trump should take risk of investment and rejiggering of capital flows so that the destructive-constructive market of free enterprise can still happen.
      It’s a tough balance, constantly sands especially with the Mid East in power flux with the Saud House in Shakespearean throes and Iran being decimated internally by the virus and the sanctions. The end result is that too many PhD economists over-think.

      Stick to the Fundamentals: Energy independence, strong domestic economy with hiring in services for upward mobility prospects for young workers, a skilled labor force. Investments in education. Balanced trade agreements with partners who have mutual interests.

      • (no “diversity”, no “sustainability”, no triple bottom line planning, no consensus building, no constant boogy-man in the closet, no self-esteem coordination? What will the democrats do in your economy/society?)

        • DonM- the best way to think of this is that we(US)can now supply LNG &oil & have a fall back! It’s now us! Why did most pol’its play the game of there is no more oil & gas. Climate change,this way they can put globalism,UN chart.& people that the Gov. Funds that are crony’s. How do you think that they stay in power. Drill baby drill was ripped apart by the Dim’s, S.Palin was 1000% correct to do it!

  2. And with the global isolation, there will be a massive economic crash coming, and that will result in a massive global drop in demand. Prices will crash even further. The US will be able to happily say – no more oil imports, we will buy all of our oil locally for $35 a barrel (or whatever their minimum price is). Great news for everyone except Russia and the mid east !

    • We definitely need to reevaluate the vulnerability of our many supply chains to global disruptions.

      • +1M The UK is already in the position of not being able to support a war time production of anything and the US will be in the same boat if it doesn’t wise up. The medicine dilemma just reared its’ ugly head and there’s more to come …. like electronics if we’re not planning ahead. All of this is part of the “plan” otherwise called a conspiracy theory by the Marx Brothers when brought to the world’s attention.

      • It is the mark of the mercantilist mindset that people blame corporations for their hiring and firing decisions, when the decision-makers in the corporations are simply acting as economic agents of their customers. Blame the customers; do not blame the manufacturers.

        Because so many Americans are mercantilists in theory, they do not understand their own motivation. They do not go to a big box store, or order on Amazon, based on the effects of their purchases on everybody else. They go to Amazon to buy a book, and they look at the cheapest book they can find that meets their specifications. The seller evaluates the book: acceptable, good, like new, or new. Then the seller puts a price on it. The customer buys the book, not based on where it was produced, or who got paid to produce it, but only in terms of the cheapest price delivered to his home, given the level of quality he is willing to pay for. Why should he care about anything else except this? So, Amazon does not care where a book was published. That is because the book buyers do not care where a book was published. Why should publishers care about anything except producing books that specific customers are willing to pay for? It is not the book publisher’s responsibility to guess what a handful of customers care about with respect to where a book was manufactured. The book publisher cares only about generating revenues from the book.

        https://www.garynorth.com/public/11030.cfm

        • There is a big difference there. Actually, most new books are printed in Red China these day. But if that is interrupted, it is not a national or personal security issue. I have one book on preorder right now for later this month – if it doesn’t show up, I will be annoyed, but not in trouble. My neighbor around the corner, though, he has heart medication delivered every month.* If it is not delivered, or is not delivered on time, he is in big trouble.

          Yes, the average consumer tends to mercantilism. The government, however, does not need to be. One solution would be to require all government purchases to be from US producers, with at least 90% US produced content, with very few exceptions. Although that should be conditioned with “lowest cost” producers of same – not “is controlled by a big union,” or “is in the district of a senior politician whose party is in power.” (Yes, I know, good luck with that…)

          *Note, I don’t know that by snooping – stupid USPS driver for a while kept on delivering it to my door, not his. Several months running, I made a trip around the corner to his place; not something that I simply write “not this address” on and throw it back in the box.

        • “You keep using that word. I do not think it means what you think it means”

          Mercantilism is a policy popular in the 19th century where tariffs and incentives maximize the country’s exports and minimize its imports. (see also Protectionism)
          The name comes from the goal of benefitting the country’s merchant class (in reality at the expense of its consumers who are less able to afford it).

          That seems to be the exact opposite of what you think it means. You could look it up. You sound like the mercantilist to me.

          • Mercantilism was not just protectionism. It was a theory the prescribed rising wealth of a nation by advantageous overseas trade. Protectionism was part of it, but also a prescription for a nation developing a set of colonies which could be exploited through direct control. Think of the Spanish Empire taking gold and silver from its New World Colonies.

            The massive rush of imperialism of the European nations in Africa, Asia, and the Americas in the 1700’s and 1800’s was based on mercantilist theory. The post-World War II divestment of the Europeans of their colonies represented a realization the the costs of mercantilism and Empire could exceed the benefits. As the path to wealth through freer, more reciprocal trade became clear, echoing the teachings of Adam Smith, the modern world trading system evolved.

            Of course, there is still a reluctance to embrace free trade….and espectially in a world dominated by the likes of China, which has returned to a kind of mercantilism through its tariffs, non-tariff protections, and its Belt and Road Initiative….simplistic free trading breaks down. And then there’s the EU, with free trade internally and mercantilism via tariffs and non-tariff trade barriers externally. Hence, Trump.

      • Yes, a thorough review makes sense. I’ll remain in favor of free trade, though, which truly enriches everyone. Free trade doesn’t mean accepting unfair trade practices. When Russia and the Saudis openly attempt to destroy the US shale oil industry through unfair competition, we should be declaring that an act of war and embargoing 100% of their oil, (or even seizing it) until they stop manipulating oil markets.

        Similarly, there are obvious national defense issues that would justify some supports to domestic industry for medicines while remaining compliant with WTO treaties. It should not be a blank check to big pharma, but any rational observer must recognize the absurdity of being totally dependent on a potential adversary for critical medical supplies that would be cut off in the event of hostilities.

        On the other hand I would vigorously oppose any protectionism that for example forces me to pay more for a lower quality car just so that union workers can earn above market wages. And I don’t give a rat’s tail if Apple’s supply chain is disrupted. Let them manage that without big government meddling.

    • Good news? A severe economic recession due to Corona Virus COVID19 can last from 6months to over 1 year in the typical to worse case due to unexpected events and if control of the spread of epidemic is lost and mandatory business closing to prevent spread of disease continues for months rather than a few weeks. A massive increase in Federal Deficit spending, widespread rising unemployment, a contraction in the overall total labor force, businesses failing, corporate debt defaults, massive investment wealth destroyed is not Good news regardless of a balance in US petroleum production supply and demand.

      • Too bad the shale plays are over leveraged. I hope you are not working for one of them. Saudi Arabia can fill up our SPR and bankrupt a lot of US oil companies. Supply and demand there Mr. Middleton.

        • The Saudis and the Russians to a somewhat lesser extent, live or die by their oil revenues or lack thereof. They need $90 resp $50 per bbl to balance their budgets and don’t produce much else (some questionable quality military hardware by the Russian aside).

          To the US, hydrocarbons are something it not only produces but uses for a myriad of high end economic outputs – different ballgame altogether.
          If /when the US substitutes it’s own hydrocarbons for whatever it no w imports from the Saudis, the latter are screwed. Same basically goes for Canada, said in passing.

        • Different circumstance, different resolution. They don’t exploit labor and environmental arbitrage to force dislocations.

        • Perhaps I’m mistaken, but it was my impression that we have been producing oil to excess and exporting it.

          If this is still true, there would be no need to tariff something we aren’t using.

          RE:
          >> “When the government interferes with the “free market” they call it SOCIALISM”

          We don’t really have a true free market system but a quasi one.
          The losses of the big boys get socialized among us plebes allow them to take risks they would not otherwise take.

          Even so, our system is a heck of a lot better than that of most other nations.

          • Perhaps I’m mistaken, but it was my impression that we have been producing oil to excess and exporting it.

            Yes and no. The US is not homogenous. While many areas of the US are net exporters, some areas (like California, for instance) remain net importers.

          • The US is a net importer of crude oil. We produce about 12 million bbl/d and consume about 20 million bbl/d.

            We export some crude oil. Canada is our most significant trading partner. We import about 4 million bbl/d from Western Canada and export about 1 million bbl/d to Eastern Canada. All together, we import about 12 million bbl/d and export about 4 million bbl/d.

          • You really can’t have free markets when it comes to international trade. The goal is a free market inside our borders and as fair a trade system with other nations. This where my libertarian brothers go wrong, because of their blind obedience to free trade they are fine with actors like China rigging the system. The founding fathers understood that one of the most important roles for the federal government is to work for The best possible trade deals. Like him or not Trump is fighting for fair trade deals for our country.

        • “How come your MAGA-hero didn’t slap tariffs on Saudi/Russian oil?”

          How come you’re so butt-hurt?

      • Today, China is a major competitor in Western markets. Its economy is basically Keynesian. Its workers can move wherever they want. We are seeing the largest migration in the history of man from rural poverty to urban middle-class living. Hundreds of millions of people have moved from the rural countryside to large cities. This is not slave labor; this is free labor. There are no government restrictions on the movement of laborers. There are very few government restrictions on hiring these workers. There is almost no social welfare system imposed by the state. The Chinese labor market is vastly freer than labor markets in the West, which are dominated by trade unions that have gotten government support, meaning the threat of violence, to support the demands of union members. This is one of the reasons why Western manufacturers are having so much trouble competing against Chinese workers.

        Chinese workers are free to move from job to job, and Chinese employers are legally allowed to hire anyone they want. Under these conditions, it is the Western workers who are closer to slavery than Chinese workers are. Western workers who are not trade union members in Western Europe are forced to take less desirable jobs, because labor union members have locked out competition from nonunion workers. Unions have used the government to send out people with badges and guns to prohibit employers from hiring nonunion workers. This is not the free market; this is a government-rigged market.

        So, the next time you hear someone argue that Western workers need to be protected against foreign goods produced by slave labor, point out to him that the reason why Western workers want protection is because they are the slave laborers. They are finding it increasingly difficult to compete against workers who live in a nation that honors the principle of the free mobility of labor and voluntary contracts between employers and employees. China is a fierce competitor, not because it is a slave labor society, but because it is competing against workers who live in a regime of government-rigged labor markets.

        https://www.garynorth.com/public/9860.cfm

        • “There are no government restrictions on the movement of laborers.”
          You plainly don’t know much about China.

        • “…it is the Western workers who are closer to slavery than Chinese workers are.”

          Average wage of a factory worker in China: $250-$450 US a month in large cities, less than $200 inland…PER MONTH!
          450 per month is $5400 a year.

          Average wage of a factory worker in the US: Entry level is about $18,500+/year and $43,100+/year for experienced workers.
          Of course, some union workers (like UAW for example) in some places get far more than that.
          Top salary according to at least one source gives top pay for a factory assembly worker at $65,000 for a 40 hour work week.
          And how about the work week for the Chinese worker getting $5400 a year?
          Some work as much as 10-12 hours a day and 6-7 days a week.

          They are free and we are slaves…is that what you said?
          Were you laughing when you typed that?

          Free to travel?
          Anyone who wants to can go get trained to be a welder and go anywhere in the country and get a job instantly.
          There are more jobs (or were before all this started…now, who knows?) that people looking for work, but it is also true labor force participation rates are low. Full time workers last Summer in the US was around 130,000,000 people, in a country with some 330 million people. Not known if that includes illegals.

          And if you can get trained and do a good job as an underwater welder, able to do the most demanding type of welds perfectly, you can get hired anywhere in the world, work a very generous schedule, and get paid a lot of money.
          $80,000 is easy to get if you can do that, and some make over $330,000 a year.
          Working with your hands.

        • You have no idea what a hukou is, or that the Chinese social security system requires paying in to a particular provinces govt for 15 years before benefits can be withdrawn and you must be living in the same province to collect.

          Labor contracts exist almost entirely to the benefit of the employers and renegimg on them is almost always consequence free even then.

          Free movement? The Chinese system is the antithesis of it!

          • and add thenew social score to the mix, travel and rental and facilities restricted if someone up there doesnt approve of you not using their app to read the rules and rpray to Xi etc
            people from rural areas moved to cities to end up sleeping in wirecages stacked on top of each other.
            gee that sounds good
            apple putting mesh on factories to stop suicidal workers from quitting the hard way?
            hmm
            staff sleeping under desks to avoid travel/nowhere to live etc

    • Link cites Center on Budget & Policy Priorities, an advocate against the existence of “income inequality” (among other positions). To get an idea of their practical orientation consider they also intoned (2019) about education cuts being problematic. I don’t know how they can claim any special insight when the cost of USA’s public schooling from kindergarten through 12th grade went from costing an average of U$50,000 per child in 1970 to more than an average of U$140,000 per child in 2009 – but with no real change in either math or reading average test scores (& a decline in average science test scores).

      • gringojay
        Inflation has made everything about an order of magnitude more expensive than in the 1970s. Homes more than twice that, electronics about the same with more functionality. So, at that ratio, the fact that we aren’t paying $500,000 per child suggests that we haven’t kept up with inflation in education. Therefore, it shouldn’t be too surprising that there is a decline in average science test scores.

        • How many people in the USA are dead from this?
          ..

          A lot less than almost every other form of death.

          • How many people in the USA are dead from this?
            ..

            A lot less than almost every other form of death.

            And infinitely less than Twitter retards.

          • I am predicting that the death rate actually decreases in the USA over the next two weeks as more people stay home and less are involved in accidents.

        • henry pool
          ..How many people in the USA are dead from this?
          ..
          Answer: Don’t know. Last number I heard was still only in double digit territory
          FYI : Daily mortality in US about 11,000+ .
          Daily US automobile related deaths about 130. Do the math.
          Just for perspective.
          Cheers
          Mike

      • Listen Middleton, lower prices for oil is good for the average American. Trump is attempting to prop up the price of oil for the benefit of oil companies. It’s apparent his priorities are for his rich friends in the oil industry instead of the poor average American that has to pay at the pump.

        • It is to a certain extent. But since the US became the world leader in oil, gas and refined production, the math has become more complicated. Unlike total fracking retards, President Trump understands this.

        • Deadpool
          Would it be in the best interests of the “average American” if American oil companies went bankrupt and we had to pay the going rate from Russian and Saudi suppliers? I think not! I find it interesting how most people have difficulty getting past their hatred to think logically.

          • Not people, leftards. Those kinder, gentler, more tolerant people than us evil right wingers…

          • missing the middle step.

            They go bankrupt … unfriendlies with resources pick up the pieces … this allows Russia/others to continue to jack up prices longer term.

            Then, Henry, the average American is hurt in the long term rather than inconvenienced in the short term.

            (decisions based on emotion rather than logic are also way easier in the short term … in the long term, well Henry needs to ask the beggars on the corners how it has worked out them.

        • The other countries are lowering their prices in order to compete with our frackers. Since the oil is cheaper than we can produce it, we buy and store it at discount. It keeps our people employed and we keep a store for future times of shortage. I like the idea of increasing that reserve so we can take more advantage of price cuts when those opportunities present themselves.

    • ACA Lawsuit Would Cut Taxes for the Most Well-Off While Ending Health Coverage for Millions

      Interesting. ACA preserved progressive prices while redistributing responsibility. Instead of affordable and available medical care, ACA redistributed revenue and provided a short-term subsidy to sustain an illusion. A Chinese or Green play.

  3. Somehow this seems very Keynesian. With his use of tariffs and trade wars, President Trump goes against current conventional economic thinking and he’s either brilliant or he has horse shoes up his a55, because it seems to work for him.

    • The trade war was already in progress. The tariffs compensate for labor and environmental arbitrage that undermine market function to determine pricing, sourcing, and distribution.

    • Other countries were severely restricting what we can sell to them, while we were not putting any restrictions on what they could sell here, and even made it cheaper for them to see here than someone here could sell for.
      Free trade does not mean “Let everyone give the US the sh!t end of every stick”.
      Trump has said he would end all tariffs if other countries did the same.
      They will not do that.
      The so called trade war is merely an attempt to get out from under crappy deals for the US.
      And the whining about it is from people that are very very outraged the US is tired of getting crapped on.

  4. Low oil prices are good for America. Why would we want to pay more for gasoline at the pump? This move by the President hurts the American consumer.

    • No move that the President could take here could significantly increase oil prices.

      The “shale” revolution altered the oil price math. The oil price crash of 2014-16 didn’t spur growth.

      • If “No move that the President could take here could significantly increase oil prices.”
        ..
        THEN:

        No move that the President could take here could significantly decrease oil prices.

        THEREFORE filling up the SPR is pointless.
        ..
        Thanks for that Dave.

    • Deadpool
      Have you heard of the story about the goose that laid the golden egg? It does not profit the American consumer in the long run if they pay very little for gasoline for a short time, and the suppliers go out of business, and then the consumers have to pay a lot for a long time. What is desirable is an equitable price for gasoline to make it affordable and not put the suppliers out of business. You seem to be unable to look outside your little box of socialist memes.

  5. Middleton, did Congress appropriate the money for this, or is the president bypassing the Constitution again?

    • Henry Pool,
      Are you 12 years old or what? I’ve seldom seen so much imbecilic rhetoric from one person in such a short period of time than what you’ve posted on this thread. Reminds me of the juvenile taunting I’ve heard on many of the online games my children used to play.

    • I also like cheaper gasoline… But I also remember what it was to be like to be massively dependent on OPEC and other less than friendly nation’s for the stuff that the refining of gasoline requires.

      • easy just stop importing oil.

        STATE WORSHIP

        The defenders of mercantilism have a religion: the religion of state worship. They do not believe that individuals acting in their own self-interest by trading with each other in order to benefit themselves are reliable sources of innovation, exploration, and creativity. They believe that the free market is an incomplete organization. They believe that there must be a sovereign judicial entity which provides guidance, by which they really mean coercion, in directing the flow of scarce economic resources. They believe that bureaucrats are trustworthy, that politicians act in the interest of the people. They believe that the state is a reliable source of economic wisdom, correct understanding of the future, correct understanding of the present, and is therefore the proper agency to equate supply with demand.

        Mercantilism is always a philosophy of state power. Mercantilism says that the state has a superior interest to the individuals who live under its jurisdiction. Anything that weakens the nation-state, anything that benefits individuals at the expense of the state, anything that elevates the judgment of property owners above the judgment of politicians and bureaucrats is considered by the mercantilist to be an enemy of the state, meaning an enemy of society, meaning an enemy of the nation.

        Mercantilists in the 17th century said that they believed in markets, but only regulated markets. They believed in monopolies granted by the state. They believed in exchange, but only when regulated by the state. What they really believed in was the expansion of the power of the state. They believed that the wisdom given to state bureaucrats is greater than the wisdom given to society as a whole by means of knowledge possessed by individuals.
        https://www.garynorth.com/public/9621.cfm

        • mercantilism
          [mərˈkan(t)əˌlizəm]
          NOUN
          belief in the benefits of profitable trading; commercialism.

          So you do not believe in profits or people being in business to make money?
          Who cares what someone says about people in the 17th century?
          Seriously…who cares?
          What does that have to do with anything going on today?
          Letting the business cycle play out may be great from one point of view, but it sucks for many individuals in the short and medium term.
          It would be rational for a wealthy individual to buy up oil and have a large supply of it, and buy more when prices are low, and sell it when prices get high.

      • David
        Where did these short-sighted socialist shills come from? It isn’t even April 1st yet!

          • I know you feel you must respond to the troll but one just cannot argue with profound stupidity. Just drop him.

          • It would appear this one self quarantined! I was going to respond to his first comment, as I checked the rest of the thread I saw that was pointless.

    • American industry likes cheap steel. 30 years on we know what China’s dumping steel below cost did to our industrial heartland. It was a strategic move on their part. Our adversaries play the long game while we look at very low gas pump prices today and celebrate like morons.

  6. “War is not an independent phenomenon, but the continuation of politics by different means.
    – Carl von Clausewitz

    This oil price warfare is an energy Cold War on the economic front between the US and Russia, with OPEC and Saudi’s nominally on our side. A “wait-and-see” approach would be a colossal strategic mistake by the US to let this play out between Russia and OPEC while the US domestic oil indistry, and thus our energy independence is obliterated. Trump is correct to not only use the SPR to take in excess US production. He should also to let it be known that oil import bans could be forthcoming to keep OPEC and Russia oil off US markets.

    We know exactly how steel dumping from China decimated the US steel industry 20-30 years ago. That was economic warfare on the US industrial base, and those past administrations let it happen. Now the warfare has shifted to new foes and this time to energy. The same fate will await US energy independence is we lose this Oil Cold War.

  7. If Russia and Saudi Arabia are stupid enough to increase oil supply when oil demand is rapidly falling, it makes perfect sense for the US to top up its SPRs with this insane and irrational cheap oil….

    The downside is that this could severely impact US fracking companies which may lead to many going bankrupt, however, I assume that many US oil/fracking companies will get federal subsidies from the $50 billion COVID19 slush fund Trump recently announced.

    I also fear Russia and Iran could orchestrate some “terrorist“ attacks against Saudi Arabian oil fields, pipelines and oil tankers to drive oil prices back up…

    A lot of moving parts…

  8. From the article: “The US currently imports close to 1 million bbl/d from Russia and Saudi Arabia.”

    Why?

    • Mostly California refineries buy this crude – you can see the tankers off the coast near LA. Also Saudi Aramco owns Motiva in Texas, the largest heavy oil refinery in the US (it may be the largest refinery).

      East coast refineries periodically purchase Russian crude but its less common.

    • The sources and volumes of our imports are mostly driven by prices and the types of crude required by our refiners. Our largest trading partner is Canada. We import about 4 million bbl/d from Western Canada, while exporting about 1 million bbl/d to Eastern Canada.

  9. Of course, in the nascent People’s Republic of Virginia, the legislature has just enacted a 5 cent per gallon gasoline tax for this year and next (ten cents total for the math challenged), followed by a tax indexed to inflation from then on. That’s on top of the idiotic “renewables” mandates, which are likely to drive our very reasonable energy prices through the roof.

    My wife and I have invested a tremendous amount of money and effort making our home in Virginia both wonderful for us, and valuable to future buyers when we both finally retire for good. I’d be happy living here, but my wife can’t stand even the mild winters we have, so this will not be our retirement home. It would be nice to not have its value destroyed by an ever-increasing cost of living, as my home in California’s was.

    • Mexico? Or, as in a 1937 joke about a Jew attempting to emigrate from Germany. His travel agent gives him a globe to decide where. Ten minutes later – by any chance, would you have another globe?

  10. Question:

    My understanding (correct me if I’m wrong) is that the Saudi cost per bbl is more than $30. So they are losing money by flooding the market with cheap oil. Side note: this is the opposite of the usual OPEC strategy of driving up prices by limiting production.

    How long can they keep this up? Also, how much of this “strategy” has to do with internal Saudi politics?

    • Politics. They want a union of producers and not support prices unilaterally. Russia rejected their proposal for cuts last week so they basically said “you don’t want to pay your share then here is what happens”

      Russians and Saudis are stubborn. Its not ending soon – but demand needs to come back first. Jet fuel demand alone might be down 2-2.5mm bpd from last year. Jet fuel is only 7% of the global product demand. Not sure how much anyone here is driving recently but if you are being honest its likely down 50%. Have you been to a mall in the last two days? Empty – hits diesel demand.

      Knuckle down a bit and wait for the warm weather to slow Covid-19 down.

    • The Saudi lifting costs are well below $30/bbl. However, being dependent on export revenue, they need ~$70/bbl to balance their budget.

      The Saudis can keep this up for several years. I don’t think the Russians can sustain this for more than a few months.

      • I built a simple model based on: Saudi Arabia, $50B annual deficit, 9.8M mbd @$63 vs. Russia: Budget even for 10.5 mbd @$42, then took the respective sovereign wealth funds into account. I later added in scenarios for the respective announced increases in production.
        Basically the Saudis are going to run out of money before Russia unless they get the price of oil to $25 or below. And even then, it is Pyrrhic. Russia can cut its budget spend – and has before. The oil portion is about 60% of Russia’s budget but is 90%+ of the Saudi budget.
        Here’s the chart:
        Price Russia Ru +200K Ru +500K Saudi Arabia
        42 $0.00 $3.07 $10.73 -$85.30
        40 -$7.48 -$4.56 $2.74 -$94.35
        35 -$26.19 -$23.63 -$17.25 -$116.98
        30 -$44.90 -$42.71 -$37.23 -$139.60
        25 -$63.60 -$61.78 -$57.21 -$162.23
        20 -$82.31 -$80.85 -$77.20 -$184.85

        Sovereign wealth fund sizes
        Russia $109
        SA $320
        All numbers except price are billions

  11. Not to be the Debbie Downer here, but the large trading houses like Trafigura as well as Platts are saying demand is down around 10mm bpd not including the supply increase. Maybe a 12mm bpd imbalance. I’m not even certain there is a historical analogy – 2009 was 2.5mm bpd, 9/11 was 3mm bpd for less than a week.

    The world has lots of storage because for the past two years the physical price was higher than the forward price, leaving inventories average. However, if those analysts are correct storage is going to fill rapidly over the next two months. The SPR has some room – mostly for medium sour crude and will delay a price crash but it cannot stop it. Its economically smart to buy low in these scenarios but the SPR should not be doing these purchases to support prices (which is will somewhat)

    Once all the storage in the world fills up (its a complicated process with refinery product storage also filling), then prices go to shut-in economics to balance the market. That number is about $15-$20 lower than here, or demand needs to roar back AND the OPEC+ union needs reinstatement.

    We are actually kind of lucky that Libya has had so much turmoil and has 1mm bpd offline for two months. That can end in a heartbeat further harming an unprecedented supply demand scenario.

  12. Australians that need reliable and affordable fuel pricing at the pump. Thank your President for opening up the Strategic Petroleum Reserve to avoid panic pricing whenever some whiff of an idea of disruption to World crude production is manufactured by despots and Cartel activity in the Middle East. His actions and offer of access has damped down those scares that were regular events over the years and that is felt in the present lowering of pump prices and our fuel bill, as our own Leaders did nothing to guarantee Australian supplies by building up our own strategic reserve.
    Thank goodness for President Trump and I wish him well in draining the home swamp. Time for all to support his actions. And when you look at the would be contenders….heaven help all of us if they get any control. Keep your eye on the ball.

    • Nicely put, KenB,
      And do you know the main reason why Australian strategic reserves have been below target for so long?
      (I don’t know). I thought we had a legislated minimum reserve. Is that still a legal requirement?
      I also think that we should have federal encouragement for fracking, to emulate USA. Also added incentive for more oil exploration, noting that aircraft – and more – need liquid fossil fuel and a domestic supply can be, used to be, cheaper than imported. The natural market, where Australia should have natural advantages, is so distorted by unacceptable green fairy tales that reversion to the norm now seems more than a year away. Shame so little is taught about free markets, property rights, sinister bureaucracy and the like, maybe because the teacher’s teachers were untaught.
      Geoff S

  13. The real problem with oil is that the marginal cost of production is generally small if you have headroom in capacity.
    Shale has a solid decline rate as does a significant amount of the worlds production, shale arguably 35%/Yr and most others 8 to 10%/Yr. The OPEC+ crowd have production headroom very low production cost and small declines but very big government budgets to support so time will solve the US production surplus but angry crowds in the OPEC+ countries will grow impatient again pushing a volume constraining deal.
    Ultimately the inflation adjusted average price of oil is US$64/bbl over the 30 year time frame and high prices stimulate to much production which is solved by price support via volume deals till collapse which is then sorted by long slow declines of the projects built that are stimulated by high prices.

  14. At some point Putin and Allah will realise that their oil price tiff is doing the US a favour. They may change tactics shortly.

  15. If I had waited about 3 hours this morning I’d have paid less than $2 per gallon… mindblowing.

  16. The U.S. is the world’s marginal, high cost, producer of petroleum. That means its production will always be the most vulnerable to any decline in petroleum prices.

    As you know, since 2008, U.S. production of petroleum has more than doubled (from less than 5MM BOPD to more than 12MM BOPD).

    In fact, it can correctly be stated that the U.S. created the oversupply.

    Putin’s gambit will succeed in substantially reducing U.S. domestic CAPEX (certainly in the short run, probably in the intermediate term as well).

    After a period of time during which Russia and OPEC have inflicted enough pain on the U.S. (which means a decline in U.S. production and bankruptcies among U.S. independent producers and oil service providers), they will once again reach an accommodation.

    This episode is a repeat of Saudi behavior seen in 2014 and in 1986. Unsurprisingly and quite understandably, the Sauds are not willing to provide a price umbrella allowing others (Russia and the U.S.) to capture market share and wealth.

    • We (my employer) immediately cut $125 million from our capital budget to maintain positive cash flow at $30/bbl. Quite a few wells will be deferred. We did this, despite the fact that 70% of our 2020 production is hedged anywhere from $47 to $57/bbl.

      We’ve done this drill before… It’s never fun, but usually creates lots of acquisition opportunities.

    • Russia agreed to cuts in the prior OPEC+ round.
      However, the US – as a large producer – has not contributed.
      Russia basically said: why should we cut oil when the benefit goes to American producers?
      As for who is to blame: it isn’t Russia that is announcing multi-million barrel per day oil shipping increases.
      It is the Saudis announced 2.3 mbd and UAE 1 mbd vs. Russia 200 kbd and later max to 500 kbd.
      2014 didn’t work – but will it be different this time around?
      I created a model and posted results in another post above – the admittedly simple model shows that the Saudis have to drop oil prices to $25 to drive Russia to relent – assuming Russia doesn’t just cut its budget as they did when sanctions first started.
      What would a protracted term of $20-$25 oil prices do to the fracking industry in the US? 2014 – prices only dropped to the 60s…

        • Quite true – but that episode didn’t kill off the US oil fracking industry.
          Perhaps it was because the financiers still felt China’s ongoing growth would drive consumption up.
          The nCOV lockdowns, however, are clearly changing the China demand situation…

  17. Bill Clinton sold off oil from the reserves in 1996 during his re-election campaign to keep the price down and help the economy. The stated reason on Wiki is for “deficit reduction”. Amazingly the next sales were in the fall of 2000 to fill the NE heating oil reserves and for “low distillate levels” in the NE, during the Al Gore presidential run.

    Sales at 4 year intervals under Clinton control tied with presidential elections. Using climate science that is PROOF it was political. The elections being close was the cause. No further discussion allowed, the science has spoken!

    Funny how I don’t remember the media asking if that was political. But that was before Fox and the massive internet information available now.

    Then W Bush refilled the reserve at the beginning of his first term, because it is a Stratigic reserve.

  18. I have a 2015 Honda Fit. A few weeks ago, I filled up the tank for a little over $14.00 at $1.89 a gallon. That car has a little lawn mower (1.5 liter) engine in it.

  19. If crude oil prices are down due (mostly) to low jet fuel demand during the corona virus scare, it’s a good idea to fill up the SPR with relatively cheap crude now, not only to prop up some frackers in the short term (until the corona virus scare blows over), but also to be prepared if some other crisis hits (if a hurricane wipes out production in the Gulf of Mexico this summer, or Iran blows up another Saudi oil field, and Europe needs extra oil).

    In response to Drake’s comment about former President George W. Bush refilling the reserve at the start of his first term, that soon came in handy after the 9/11 attacks required the use of lots of oil to fuel the attacks on Al Qaeda’s training camps in Afghanistan.

    Terrorism isn’t the major threat right now, but it’s prudent to build up the SPR in times of plenty (oil-wise) in case a lot of oil is needed in a hurry sometime in the future.

  20. My assessment is that under previous administrations the US domestic oil supply was tied up in regulatory knots. When a company is absolutely dependent on energy and there is the perception of a disruption the tolerance for trading a high price for certainty creates wide price fluctuations. One can know if the policies are good by the lack of
    spectators. The price swings are the penalty for every on knowing the supply policies are lacking. I call it “the piss poor policy commodity price penalty.”

  21. I think we need a tariff on imported oil equal to half the delta of $50 and the Brent price of oil per barrel. That would be about $10 right now, which would put domestic oil at around $40/bbl. That’s a bargain price: It was double that 5 years ago and has averaged about $58/bbl during the last five years.
    We can’t let a crazy price war by OPEC and Russia destroy our domestic producers. Too much of a good thing is often a bad thing – I believe that includes too low a price for oil.

  22. DonM- the best way to think of this is that we(US)can now supply LNG &oil & have a fall back! It’s now us! Why did most pol’its play the game of there is no more oil & gas. Climate change,this way they can put globalism,UN chart.& people that the Gov. Funds that are crony’s. How do you think that they stay in power. Drill baby drill was ripped apart by the Dim’s, S.Palin was 1000% correct to do it!

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