BUSINESS: Bush May Release Some of the U.S. Petroleum Reserve

Due to the possible disastrous consequences of Hurricane Katrina to the U.S. oil supplies, President Bush appears to be moving closer to a possible release of some of the Strategic Petroleum Reserve. The reserve contains about 3/4 of a billion barrels of oil and is contained in old salt mines in Louisiana. This would be the first release of the reserves since the Clinton administration.



This would be an apparent major reversal of policy if the Bush administration does this, as they've seemed completely unwilling to tap into these reserves unless there was a disasterous shortage of oil and the military needed it...

Related News Links:
en.wikipedia.org

[edit on 8/29/2005 by djohnsto77]

I highly doubt he would use the sites you noted since more then likely they are under water at present and some of the near by refineries also reported to have some damage.

My guess if he does use the reserves, they will be taken from sites in Texas.

MAybe, just maybe the whole "we have lots of oil left," cry is a herring. Maybe that reserve has been bled already?

I know, silly, I mean the nations government would have to actually lie and deceive it's people.

Well, isn't that something.

We have a reported 1 million barrel per day decrease in our refining capabilities and some one's talking about releasing from the strategic reserves. If our refining capacity is diminished the last thing we want to do it is increase oil supply into a diminished system.

In short, something's not right.

And this wouldn't be an exchange most likely, it would be a drawdown. Which makes it more interesting. An exchange only guarantees the same or more oil be replaced in the reserves. In other words, an exchange benefits us. A drawdown benefits some one, but not us.

We pay for the strategic petroleum reserves. They belong to us. This is what happens when a drawdown occurs. The government sets the price, say from 90 to 98% of the market value (historically speaking that is how it has happened). Most of the reserves are bought into the reserves by the government at below $15/bbl for two reasons. When the price of oil is low, the government supplies the reserves, but buying oil at low oil prices ensures lower producing wells stay operating when they would otherwise be shutdown because the price of oil doesn't cover the producing costs.

So we have $15/bbl and under oil in the reserves. If they do a drawdown now they're going to get from 90 to 98% of the market - which is a LOT! It's a heck of a lot more than $15/bbl. So the government sets pretty to make a bunch of money off the $15/bbl oil we paid for...and then the oil companies who purchase this oil get to make us pay $2.5+/gallon of gas. When you add on the fact that a drawdown from the reserves automatically causes a jump in oil futures (because everybody wigs out), the oil companies are sitting pretty buying at 2 to 10% below market knowing they are going to sell at something above today's market! And remember - we paid $15/bbl already!

So let's take the situation of $70/bbl market price. The government will sell somewhere between $63 and $69/bbl. The price of oil will go up maybe only temporarily, but the oil companies don't care because they've got $1 to $7 instant profit on this oil, and anything over $70 is that much more. Meanwhile we've already paid $15/bbl for it in the first place which means we are actually realizing $70+$15 (or maybe it goes up to $80 +$15)...but wait, I didn't add in the interest on the national debt to buy the $15/bbl oil in the first place!

And so what we have here is talk of selling $15/bbl oil at near $70/bbl by the U.S. government when there is ABSOLUTELY no reason to do it because the refining capacity is decreased! Then the news of rigs (that may well have already been at a diminished or zero production rate) being lost in the Gulf will shoot the price of oil higher and we'll get to pay more and still not be able to refine what we've got in the market! And the oil companies will be having a blast!

The first time an emergency drawdown was done by the U.S. government was in Desert Storm

Originally posted by Valhall
Well, isn't that something.

We have a reported 1 million barrel per day decrease in our refining capabilities and some one's talking about releasing from the strategic reserves. If our refining capacity is diminished the last thing we want to do it is increase oil supply into a diminished system.

In short, something's not right.

I would like to think the president did not make this choice without some serious thinking first.

What he has done is try and prevent further price hikes. I do not really like it however I think he has done the right thing in this case.

It may be days, weeks or heaven forbide months before they know what damage has been done to the refineries, wells off shore, pipelines and let us not forget that New Orleans is the only port in the US that off loads super tanks. Just how do you expect oil imports to get here? How long do you think it will take to repair the damages to refineries, pipe lines and off shore wells?

(I used the past tense since our local news just said he authorized its use)
I assume they confirmed that before reporting it although I do not know for sure. So take it with a grain of salt until confirmed.

[edit on 8/29/2005 by shots]

This would be the first release of the reserves since the Clinton administration.

Unless I'm reading this wrong he loaned some out last year when Hurricane Ivan hit.

www.fe.doe.gov... Ivan

Question: How fast can oil be released from the Reserve?

Answer: Should the President order an emergency sale of Strategic Reserve oil, DOE can conduct a competition, select offers, award contracts, and be prepared to begin deliveries of oil into the marketplace within 13 days. Oil can be pumped from the Reserve at a maximum rate of 4.4 million barrels per day for up to 90 days, then the drawdown rate begins to decline as storage caverns are emptied. At 1 million barrels per day, the Reserve can release oil into the market continuously for nearly a year and a half.

www.fe.doe.gov...

Out of the 700 Million Barrels in the reserve only a little over 200 Million is light sweet. Rest is heavy sour which is harder to refine.

One of the forecast maps had the hurricane going over some of the lousiana reserves so when if he does release them, it will probably come from Texas.

I think this maybe too little too late, the damage has been done to the economy and preventing it from climbing will help but not recover the economy. What we really need is more production capability, more refineries with newer equipment etc, That will eventually create a surplus and cause gas prices to drop.

Is it possible the US government steered the storm away from a direct N.O. hit. This could have been so much worse. could they do that.

Originally posted by digitalassassin
Is it possible the US government steered the storm away from a direct N.O. hit. This could have been so much worse. could they do that.

I would think if they had that ability it would have missed N.O. completely. I don't see why they would let it even get close. It still did a lot of damage to the area, and will probably do a lot of damage to the economy if things are as bad as they seem to be down there.

Valhall you are absolutley amazing! I knew there was something that seemed wrong about the idea to release oil from our reserves; but I wasn't sure exactly what it was. You put it so clearly, and that is why I love this site. It allows me to learn so much from people who have a much deeper knowledge of many facets of life. Thanks for your insight Valhall; and now I know why I felt that something was wrong.

Brilliant post Valhall.

Now if it were up to me I wouldn't open up the oil reserves, it provides a convienent excuse to continue doing what we're doing. Instead I'd get a few more refineries built and then get us going on biodiesel.

MSNBC is reporting right now that 8 refineries, constituting 1.8 million barrels of refined oil per day, have been knocked out along the gulf coast.

I asked in another oil thread, but is South Florida or Florida I should say the only place being warned about gasoline shortages???

Officials: Gas Supply Good Now, But Some Stations Could Run Out

Well, I guess the point is that, if there were in fact shortages, the release of the SPR isn't going to make any difference because the bottle neck is at the refining capabilities, not the production.

Was just about to point that out Valhall, you can have all the oil you want but if theres no refinery's then theres no gas. Bottom line is theres no spare refinery capacity, whats just been knocked offline...thats it gone for however long it takes to fix. Get gas NOW. You might think prices are steep tomorrow, but that wont compare to next week or week after, etc

I don't really understand what the purpose would be. LA had a large amount of oil refineries down there, and you can't pump crude into your car (effectivly). If we can't refine it, having more oil on the market isn't going to help much.

EDIT: Dang it, Valhall beat me to it

[edit on 8-30-2005 by junglejake]