posted on Aug, 29 2005 @ 09:25 PM
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