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Guest “Let’s go Brandon!” by David Middleton

Back before the shamdemic, the economy was booming, oil prices were rising and President Trump was about to slam the Iranian thugocracy with severe sanctions. There was a great deal of caterwauling among the snowflakes about this triggering oil price spikes and that President Trump would abuse his executive authority to release oil from the Strategic Petroleum Reserve in an unprecedented effort to manipulate oil prices…

What happens if Trump taps the Strategic Petroleum Reserve
PUBLISHED WED, JUL 25 2018
Priyanka Narayan

President Donald Trump has been talking a lot about controlling global oil prices, tweeting about Saudi Arabia’s need to ramp up production and, during a press conference with Russian President Vladimir Putin, posing the idea of “regulating oil prices.”

There is good reason for Trump to be concerned. His administration’s plan to sanction Iranian oil exports in November will create a significant global oil-supply decline. Oil prices that spike too quickly have caused past economic recessions, and the U.S. economy already is running hot ahead of midterm elections taking place when the Iran sanctions start in November.

For these reasons, there has been speculation Trump may seek to tap the U.S. Strategic Petroleum Reserve. The Trump administration also is reportedly lobbying international allies to release emergency stockpiles through the International Energy Agency, though the president’s administration remains divided over the idea. The IEA denied the reports, telling the press “there have been no specific discussions about an emergency stock release.”

If Trump were to tap the Strategic Petroleum Reserve — the world’s largest supply of emergency crude oil, 660 million barrels stored in massive underground salt caverns off the coast of the Gulf of Mexico — it would be the first time that an SPR release was deliberately planned in advance.

Experts say this would set a precedent.

[…]

CNBC

The “experts” went on to describe the imagined SPR release as a “foolish and an extraordinarily bad precedent,” unlikely to significantly affect oil prices.

Now some of the snowflakes are praising the Harris-Biden Dominion for doing exactly what they moronically imagined President Trump would do.

Some climate campaigners praise Biden for releasing emergency oil reserves
Move appears to contradict president’s climate crisis goals but some say it defends the economy ‘against disruption’

Maya Yang
Fri 26 Nov 2021

In a surprising move, some climate crisis campaigners have praised Joe Biden for ordering the release of emergency oil reserves in an attempt to reduce energy prices across the country.

On Tuesday, the president announced the release of a record 50m barrels of oil stored in the Strategic Petroleum Reserve, in coordination with other countries including China, India and the UK.

[…]

Democratic Senator Ed Markey of Massachusetts, who has focused extensively on the climate crisis, praised the Biden administration. “This is what reserves are for – defending our economy against disruption. Profiteering can’t go unanswered, especially as Big Oil makes billions and fuels the climate crisis through exports,” he tweeted on Tuesday.

Markey attributed the surge in oil prices to oil companies and corporate greed, saying: “Some of the upward pressure on oil prices today is directly tied to the fact that oil producers can make more money by producing less oil … the smartest thing we can do to insulate America from future global oil price shocks is to reduce our dependence on oil in general, and especially foreign oil. That means investing in America’s transition to a clean energy future.”

Lorne Stockman, research director of Oil Change International, an environmental group focused on creating a “fossil-free future”, said Biden should have acted sooner, if only to counter a barrage of Republican criticism blaming him for high gasoline prices.

“Presidents are always blamed for high gas prices, whether they have anything to do with it or not,” Stockman said, calling the measure a small step to bring short-term relief to American consumers.

“I don’t see a conflict between having long-term policies on climate change and having a short-term policy that would protect the economic well-being of Americans in need,” Amy Myers Jaffe, managing director of the Climate Policy Lab at Tufts University, told Bloomberg.

[…]

Kelly Sheehan, senior director of energy campaigns with the environmental organization Sierra Club, praised Biden’s actions but cautioned that the only way to fully attain energy security is to “rapidly transition away from risky fossil fuels like oil and gas and make it easier for more people to access clean energy”.

[…]

Yet despite previous criticisms, many environmental groups regard Biden’s recent announcement as a necessary evil in the long journey to reduce American dependence on fossil fuels and break up the monopoly of oil companies.

“Price volatility will always be part of big oil’s playbook,” said Kassie Siegel, director of the Climate Law Institute at the Center for Biological Diversity. “Let’s break their stranglehold on our economy once and for all.”

The Grauniad

The reaction to Brandon’s Biden’s weak and futile gesture was a sharp rise in crude oil prices.

Why oil prices jumped despite the U.S. tapping the Strategic Petroleum Reserve
Nov. 23, 2021
By William Watts

Oil futures rose sharply Tuesday after the Biden administration announced a coordinated, U.S.-led effort by energy consuming countries to release strategic crude reserves. What gives?

First off, a move had been well-telegraphed. News reports speculating on potential releases from the Strategic Petroleum Reserve and talk of a coordinated effort that would include China and others circulated in recent weeks, and were widely cited as a factor in crude oil’s pullback in price from 7-year highs set last month.

West Texas Intermediate crude for January delivery CL00, 2.27% CLF22, 2.25%, the U.S. benchmark, jumped $1.75, or 2.5%, to close at $78.50 a barrel. Global benchmark Brent crude BRN00, 2.44% BRNF22 surged $2.61, or 3.3%, to $82.31 a barrel.

But there’s more to the bounce than traders simply fading a piece of long-anticipated news, analysts said.

The size of the U.S. release at 50 million barrels was larger than the 35 million barrels that had been widely anticipated, said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. But details of the plan, including the use of swaps, which means oil purchased from the SPR must be returned in the next one to three years, may have blunted the impact somewhat, he said, in a phone interview.

[…]

Market Watch

Oil prices did tank on Friday… However this was due to the latest government-induced panic over the recently discovered Ohmygod variant of the ChiCom-19 (ChiCom-19-OMG) virus.

Investing.com

The Ohmygod variant is apparently highly contagious, but far less virulent than the previously engineered variants. But… Hey… Why let a new variant go to waste?

The newly engineered ChiCom-19-OMG variant led Morgan Stanley to “slash” their 2022 oil price forecast. Having spent the past 40.5 years working in the oil industry, I think this is the first time I have ever seen $82.50/bbl be the result of a slashing…

Morgan Stanley Slashes Oil Price Forecast On Omicron Fears
By Tsvetana Paraskova – Nov 29, 2021

The oil market expects that the Omicron variant of the coronavirus could dampen oil demand in coming weeks, Morgan Stanley said on Monday, slashing its Brent price forecast for the first quarter of 2022 to $82.50 a barrel from $95 per barrel expected earlier.

Oil prices plummeted by more than 11 percent on Friday amid fears that the newly detected heavily mutated Omicron COVID variant could prompt more restrictions and lockdowns globally and slow oil consumption.

Early on Monday, both benchmarks were up by 5 percent, with Brent at over $75 and WTI above $71 per barrel, after market participants realized that the Friday plunge may have been excessive and also driven by low liquidity due to the festive Thanksgiving weekend in the United States.

Still, the new variant has already prompted the United States, the EU, the UK, and many other countries to ban flights from South Africa and other countries in the south of Africa where the Omicron strain was detected first. 

[…]

OilPrice.com

Remember when Brandon accused President Trump of being “xenophobic” when he instituted travel bans back when ChiCom-19 was first released on the world by Communist China? Funny… Ain’t it?

Back to oil prices and the SPR

Not a bad year…

Investing.com

A really futile and stupid gesture

Brandon’s “really futile and stupid gesture” consists of 32 million barrels of “exchanges” and accelerating the previously authorized sale of 18 million barrels from the SPR.

Summary of 50 Million Barrel Release from the Strategic Petroleum Reserve
NOVEMBER 23, 2021

Office of Fossil Energy and Carbon Management

Today, the U.S. Department of Energy announced the release of 50 million barrels of crude oil from the Strategic Petroleum Reserve (SPR).  The SPR release will consist of a 32-million-barrel exchange solicitation to be open to the public on Wednesday, November 24, 2021, and an 18 million barrel Congressionally-mandated sale that will conclude all sales under the authority of the Bipartisan Budget Act of 2018 during Fiscal Years 2022-2025. 

The exchange will be conducted with crude oil from all four SPR sites:

*Up to 10 million barrels from Bryan Mound

*Up to 10 million barrels from Big Hill

*Up to 7 million barrels from West Hackberry

*Up to 5 million barrels from Bayou Choctaw

SPR crude oil will be delivered to successful bidders between December 16, 2021, and April 30, 2022, with priority given to those bidders that can take the SPR crude oil the earliest.  Successful bidders will then have to deliver the amount of crude oil they received, plus a premium volume defined in the solicitation, back to the same SPR site where the crude oil was released at specific months during Fiscal Years 2022, 2023, and 2024.  The longer it takes to return the crude oil back to the SPR, the more premium volume of crude oil will be required. 

Companies interested in receiving crude oil through the exchange must submit bids no later than 10:00 a.m. Central Time, December 6, 2021, and contracts will be awarded to successful offerors no later than December 14, 2021.

[…]

Office of Fossil Energy and Carbon Management

Ponder this… If a company opts to partake in the SPR exchange, they will have to return the same volume of similar quality oil plus a premium to the SPR “during Fiscal Years 2022, 2023, and 2024,” when prices may very well be higher than they are now.

• What are exchanges of oil?  How does an exchange differ from a sale?

Crude oil exchanges are authorized as a means of acquiring oil for the SPR at no cost to the SPR.  “Loans” are a form of time exchange generally used after a disruption to commercial oil supplies has occurred that resulted from an event outside the control of the company, such as a hurricane in the Gulf or a ship channel closing.  The event must be of sufficient scope and duration that DOE determines it would be in the public interest to make the loan.  Loans are initiated at the request of the company.

Exchange authority requires that oil of a similar quality be repaid to the SPR, along with premium barrels (similar to interest), within a specified time. The amount of the premium barrels and the repayment date are determined through contract negotiations.  Additionally, the costs to the SPR for drawdown and transportation of the crude oil are included in the value of the premium to be paid.

Broad authority for exchange contracts is found in Section 159 of the Energy Policy and Conservation Act, P.L. 94-163. EPCA provides that the Secretary may acquire oil for the SPR by “purchase, exchange or otherwise.” There also exists special authority for the Secretary to conduct a test sale or exchange.

DOE

Exchanges are common in the aftermaths of hurricanes and other actual supply disruptions. Refiners will borrow SPR oil and then return it plus a premium when their commercial supply is restored. In this case, a refiner would be borrowing oil from the SPR that they could purchase for ~$70/bbl. They would then have to purchase somewhat larger volume of similar quality crude oil and return it to the SPR. The only way they come out ahead on the deal will be if oil prices are significantly lower when they have to repay the borrowed oil.

The sale of the remaining 18 million barrels was previously authorized by Congress. They will simply attempt to accelerate this sale.

Did you know?

SPR sales previously authorized by Congress will cut the SPR in half over the coming decade.

Source: U.S. Energy Information Administration, Petroleum Supply Monthly and Congressional legislation (EIA)

The purpose of the SPR is to act as a cushion against supply disruptions, not falling poll numbers.

NOVEMBER 29, 2021
Recent legislation would reduce the U.S. Strategic Petroleum Reserve

On Tuesday, November 23, the White House announced plans to make 50 million barrels of crude oil available to the market through a combination of exchanges and accelerating previously announced sales. With these sales and several other legislated drawdowns, SPR inventories could decline from 618 million barrels (as of October 1, 2021) to about 314 million barrels by the start of the 2032 fiscal year, the lowest level since March 1983. The Infrastructure Investment and Jobs Act, passed earlier this month, includes a provision to draw down 87.6 million barrels of crude oil from the U.S. Strategic Petroleum Reserve (SPR) in fiscal years (FY) 2028 through 2031.

The SPR was established in the 1970s to alleviate the effects of unexpected oil supply reductions. The reserve was designed to hold up to 714 million barrels of crude oil across four storage sites along the Gulf of Mexico, where much of the U.S. petroleum refining capacity is located.

Crude oil can be released from the SPR under four conditions: emergency drawdowns, test sales, exchange agreements, and nonemergency sales. Emergency drawdowns and test sales are relatively rare. The most recent emergency drawdown occurred in 2011 in response to production disruptions in Libya, and the most recent test sale occurred in 2014. The SPR has released crude oil under exchange agreements 13 times since 1996, most recently after Hurricane Ida earlier this year. In these exchange agreements, crude oil is released to private companies and repaid in kind by specified dates with additional barrels, similar to monetary interest on a loan.

Congress has also authorized nonemergency sales of SPR crude oil to respond to lesser supply disruptions or to raise revenue for the U.S. Treasury. For example, the Fixing America’s Surface Transportation Act, passed in 2015, and The Bipartisan Budget Act of 2018 collectively call for the sale of more than 160 million barrels of crude oil from the SPR in FYs 2022 through 2027.

One of the SPR’s core missions is to hold enough oil stocks to fulfill U.S. obligations under the International Energy Program, the 1974 treaty that established the International Energy Agency (IEA). As a member of the IEA, the United States is obligated to maintain stocks of crude oil and petroleum products, both public and private, to provide at least 90 days of U.S. net import protection. The U.S. Department of Energy calculates this value by dividing the SPR inventory level by EIA’s sum for net crude oil and petroleum product imports.

As net imports of crude oil and petroleum products into the United States declined in recent years, the volume needed to meet the 90-day import coverage also fell. In October 2019, the United States exported more crude oil and petroleum products than it imported, becoming a net exporter for the first time in EIA data, which dates back to 1977. IEA members who are net petroleum exporters do not have stockholding obligations. Although the United States has occasionally imported more petroleum than it exported in some months since late 2019, SPR inventory levels have continued to provide sufficient coverage for net import protection.

EIA

The EIA provided this graphic to demonstrate that the SPR is far larger than what would be required “to provide at least 90 days of U.S. net import protection“:

Source: U.S. Energy Information Administration, Petroleum Supply Monthly
Note: IEA is the International Energy Agency. Days of cover increase as net imports decrease or switch to net exports. Only months with less than 360 days of cover are shown. On a monthly basis, days of cover have exceeded 360 days 18 times since 2018, and the United States was a net exporter in 17 months. (EIA)

The chart is either poorly informed or disingenuous. The net import/export plot is of petroleum and refined petroleum products. We are a net importer of crude oil (2.7 million bbl/d in 2020). We are only net exporters of refined petroleum products and natural gas liquids.

EIA

The SPR only contains crude oil.

 Crude Oil Storage by Site  (as of August 30, 2021)

*Bryan Mound – holds 224.1 MMB in 20 caverns – 66.6 MMB sweet and 157.5 MMB sour.

*Big Hill – holds 139.4 MMB in 14 caverns – 65 MMB sweet and 74.4 MMB sour.

*West Hackberry – holds 185.7 MMB in 22 caverns – 102.2 MMB sweet and 83.5 MMB sour.

*Bayou Choctaw – holds 71 MMB in 5 caverns – 18.9 MMB sweet and 52.1 MMB sour.

[…]

Current days of import protection in SPR – At the end of CY 2019 (as of December 31, 2019), the SPR’s crude oil inventory was 634.9 MMbbl.  This is equivalent to approximately 1,069 days of supply of total U.S. petroleum net imports.

[…]

DOE

634.0 mmbbl is not adequate to cover 1,069 days of crude oil imports, not even at the shamdemic-reduced rate of 2.7 mmbbl/d in 2020. It’s only adequate to cover about 235 days of crude oil imports at 2.7 mmbbl/d.

If it is drawn down to 314 mmbbl over the next ten years, it will only cover 116 days at 2.7 mmbbl/d. While still barely above the 90-day minimum, how likely is it that our net crude oil imports will remain at 2.7 mmbbl/d or lower over the next decade? The IEA 90-day commitment also allows for private stocks to be counted; however those stocks are currently depleted and one of the main reasons prices are high.

EIA

EIA

The only way oil and gasoline prices can come back down is for supply to consistently outpace demand. And that will happen when we once again do what Barrack Obama said we couldn’t do.

We can’t just drill our way out of the problem.” Well, we did drill our way out of the problem.

Prices could also fall if demand is crushed by a government overreaction to the Ohmygod variant or if the Saudis get into another price war with the Soviet Union (just respecting Vlad’s wishes).

In the meantime, maybe Brandon should read the CNBC article that was aimed at President Trump. It ended with a link to some sage advice from Daniel Yergin:

Yergin, vice chairman of consultancy group IHS Markit, said he’s not surprised that Trump jumped on the higher oil prices, which usually means higher gas prices at the pump. “You get the political response with the president looking at gasoline prices and reading how motorists will respond to it.”

However, Trump’s policy actions are limited, said Yergin, who had been on Trump’s now-disbanded Strategic and Policy Forum. “There’s not much except for talking about it.”

CNBC

I guess oil prices are like the weather…

Everybody talks about the weather, but nobody does anything about it.

Quote Investigator

It does seem appropriate that many of the people complaining most vociferously about the weather (climate change activists) praised Brandon for this “really stupid and futile gesture” regarding oil prices. Well, Brandon? What do you have to say for yourself?

via Watts Up With That?

December 1, 2021