Pres Obama decided to start depleting the Strategic Petroleum Reserve (SPR).  This week he announce that he was going to drain 30 M bbl (1 bbl means 1 barrel or 150L ) oil we have stored for emergency use.

President Obama opens the SPR

This not just a bad idea, it is a horrible one; it generates helpless outrage in the people who understand what Pres O  is doing.  Also, it may violate the rules of engagement with the SPR.    In a previous post,  we pointed out that the US has 726 M bbl of oil in its SPR, the largest such facility in the world. The plan to drain 30 M bbl means Obama plans to drain 4% of what is there      …  Is this legal  –  can he do this?   … Is this necessary  –  can he drain this irreplaceable resource?

3 requirements

Is it Legal?    Check appendix A2 of of  Are Strategic Reserves Obsolete.    There are 2 formal conditions (3 actual rules) that allow the SPR to be attacked.  [1]  Drain if there is a Significant Shortage In Supply;  [2] Drain if there is a Severe Interruption in National Energy supply;   [3]  Drain if it satisfies “obligations under International Energy Programs.”  At the end of A2 (the above post) click on the slide and read the second point.  It is telling.

We will discuss [1] and [2] in the next paragraph. [3] means the IEA (International Energy Agency) which released a statement calling all member user nations holding reserves to do a draw-down put a total of 60 M bbl oil into the market.

The announcement and related  FAQ sheet  blurs who is doing what.  Example:  North America is putting in 30 M bbl total. Seems to mean Mexico, US and Canada are all contributing hard;  fact – 30 M bbl will be from our SPR in Texas and Louisiana.  An unaccounted amount of the remaining 30 M bbl is from stock manipulations of various types, not real discharges of petroleum fluid into tankers.

The IEA indicates that the oil the US releases is not for US citizens, it will be sold by oil companies onto international market to force a price reduction. This sounds as though it benefits CEOs again.   Guys, we did not build our SPR  for the wonderful comfort of all living creatures.  It is survival reserve meant to help our families, our children, make it through times of disasters or malevolent human actions.   I hate seeing my country making sacrifices so that the few ultra richies get wealthier.  Talk about the return of the robber barons.

Why raid now?

Is it Needed?   Rules [1] and [2] lets our Pres pull oil based on need.   I just filled up in the last week.   Drove right in, pulled into a slot and filled my tank completely  (good thing, too.  I was down to the last 1/2 gallon).   A week or so ago gasoline exceeded $4.00/gal, now it is about $3.80. This is not how a scarce commodity behaves.   Gas prices may be the center of conversation in the various bars about, but do not constitute a crisis.

My hair is white so I can recall with scalding memory the 2 to 4 hour gas lines of 1981/82 Reagan gas  crisis,  being restricted to a fill opportunity only every other day, and not filling anything except my car tank.  Ultimately the number of gallons per fill was controlled, too.   Children, this is what is meant by a “significant shortage;”  it defines “crisis mode supply levels.”    I recall the Nixon days when our good friend, Saudi Arabia, slapped an embargo on us.  The supply of oil ran out almost immediately.   Kids, this defines “significant interruption.”  Our current experience does not come even close to either of these situations —  no inflation, no lack of supplies, no shutdown of delivery.

So we will drain 30 M barrels of oil purchased at $30.26/bbl (site costs included). To  replace, we will spend $90 – 100/bbl.  Gasoline prices cannot be driving the decision, they have been dropping lately.

Loss and replacement as % of world demand

The IEA/Obama excuse is that our military incursions into Libya have stopped its oil flow  Libya produced 1.5 M bbl/day, a 1.7 % reduction in available oil on the market (world usage is about 88 M bbl/day).  The proposal is to replace this 1.5 M bbl/day lost with 2.0 M bbl/day from irreplaceable world supply (2.3% of world usage).   It just might work while the reserves last, but the U.S. SPR is only about 8 days of world usage.  After a bit, the world’s biggest reserve would be drained and the strategy must collapse.  This is what “unsustainable” means to an action plan.   We are actually going to do this to counter high market prices.  This is a pitiful excuse to attack petroleum reserves.

Finding not due to Supply issues, had nice effect on Market

After the Presidential Finding, released yesterday, we have a 13 day lag until the oil starts flowing;  our raw crude will hit the markets about first of July.  Dropping gasoline prices will not suddenly go down more because of this; refinery turnaround is about 3 months (Oct).   It did have a 5.5%  impact on the raw oil futures market, though.  Pres O did not respond to supply issues; none exist right now.  Pres O did not respond to any gasoline shortage; we have plenty.  I am certain there must be a reason to drain the SPR, just not the stated one.

I was in shock upon finding a FoxNews post that agrees with my general anger.  They also agree that Pres O’s action smells like 5 day old summer road kill.

Drain America First

My consolation is that Fox News belongs to the Drain America First (DAF) club,  Fox may be the charter member.  These DAF-ies  all want to get the big bucks to flow into family pockets and right now.  Foreigners should not be the only ones who can get rich by selling their future, we gotta do this too.  Soon, after we complete the  frac-ing of our continental landscape,  we will have no arable land,  no clean flowing drinking water, no accessible fuel left of any kind,  but plenty of war threats.  Of course, if we do get into a war, we might end up in the same place,  but the DAFies want us to be completely helpless on the world stage as soon as reasonably possible.

Talking heads in the various news channels tend to attribute for/against SPR drainage as a statement for/against general DAF-ie policies.  I disagree.  The DAF-ies are pretty daffy, granted,  but the drain-ies seem to think this oil stuff is just a passing thingy.  My thinking: Oil peaking in the US, Venezuela, North Sea, Saudi Arabia, etc.  means petroleum price must go up.  There can be no quick fix.   This is a recurring theme in this blog.

So what is the justification?  I just do not know, but…  there is a lot of money attached to 30 M barrels of oil.   BTW:  Candidate Obama commented that he was impressed by the market responses when Pres Clinton drained the SPR twice (1996 and 2000).  I wonder if there is something significant about the 4 year interval in Pres C’s timing?  Pres C violated the law and got away with it, so why not Pres O?

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I am strongly opposed to this move. 4% is a big, expensive drain to replace and we will feel any unreplenished loss next time a Katrina scale hurricane hits Florida, or Texas  (, or…)  at the same time as a magnitude 9 earthquake.

Can we do something?  I doubt it.  A lot of things like this happen:  The Pres says “I am going to do such-a-thing,”  does it, and gets away with it.  Pres O has even covered his action with an official-sounding international “agreement.”   And so it goes.

Update: 2012 Mar 11:  The U.S. EIA released a new report this week,  for the first time since 1949, U.S. EXPORTS exceeded its import volume in 2011.  That this happened in conjunction with the first sell-off of our SPR in a long time, is a stunning demonstration that the decision truly was to help certain companies and very rich families, not the American public as a whole. Link over to the EIA site, read the short report look at the lead graph.

…………………………………….

Charles J. Armentrout, Ann Arbor
2011 Jun 24
Listed under  Natural Resources    …thread Natural Resources > Oil
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