Hacker News Reader

Comment by iav | Hacker News Reader

The US bought 77M barrels of crude oil in March 2020 under a Trump executive order. The purchases were directly from US producers, but WTI was trading around $20-25/barrel in that period. Selling 50M barrels now is going to profit the country by $50/barrel (before holding and transport costs), so by all measures this has been a good trade for the country!

While researching this I was also reminded that we are already selling 20M+ barrels per year from the SPR. Many major budget bills over the past 7 years included a sale from the SPR as part of the funding. We also need to pay $450M for overdue maintenance on the SPR itself - and you guessed it, that was "paid for" by selling 10M barrels from the SPR this year. This is not a petroleum reserve anymore, this is a budget reserve for Congress to balance its bills.

View on HN

If you happen to own a unique storage facility for a (somewhat) volatile asset, exploiting it to produce income for the country seems like a smart idea. I also see no issue using the same profits to pay for the maintenance of the storage facility itself. What is the problem, exactly?

If you think buying low and selling high is simple, then you can just buy futures contracts.

Futures contracts alone can't do this. A futures contract for March 2023 delivery will always be delivered in March 2023, no matter how many times you buy and sell.

Instead you need to buy a contract for Dec 2021, store the oil, and sell another contract today for delivery in 2023 for a higher price. This is exactly what people with storage facilities do, and is why people who buy CRUD ETF's don't make all the money, even if they make the right call about which direction the oil price will go.

All the professional futures traders were of course trying to do exactly this, with the result that all of the storage capacity that was available on the open market was full. What made this a good opportunity for the US government was that they had a whole bunch of storage space free in the strategic reserve to execute this strategy, and making use of it would both make them money and reduce the disruption to the economy from the sudden surge in oil demand once everything opened up again. It was both entirely predictable and predicted that oil and fuel prices would shoot up again once that happened, there just wasn't any way for most people to take advantage of it due to the difficulty of storing oil.

Or you can do the real deal.

Aren't futures dependent on storage capacity anyway?

Like at some point at scale, it's got to be better to do the physical rather than contract equivalent.

When I look at the SPR levels at https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W... it doesn't show an increase of 77M barrels. From March 2020 to the end of President Trump's term is shows an increase of about 3m barrels.

Where can we find the information of the 77M?

That's probably because previous Congressional acts mandated regular sales from the SPR as evidenced here https://www.eia.gov/todayinenergy/detail.php?id=35032

Not to mention the 10M barrels we sold just to pay for the upkeep (it's like selling gas from my car to pay for new brakes - we shouldn't be bartering oil for maintenance expenses).

But a trade is a trade - had they not bought the 77M the SPR would have dropped by 74M rather than the increase of 3M.

> so by all measures this has been a good trade for the country!

If your measure is LIFO accounting, sure.

> so by all measures this has been a good trade for the country!

three cheers for good old America Inc.

Personally when I came across internet discussions about Norwegian oil production, it is mostly pointed to CO2. In case US - topic is usually about profit.

Reply on news.ycombinator.com