https://www.instituteforenergyresearch.org/international-iss...
> However, because the price of gasoline depends largely on the cost of crude oil, which is mostly based on global supply and demand, experts told us that oil sold from the reserve does not need to stay in the U.S. to bring down gasoline prices.
> For each sale, the Energy Department announces the type and amount of oil from the four SPR sites that will be auctioned in a competitive bidding process. By law, the contracts are awarded to the companies that make the highest bids, and any company that is registered in the SPR’s Crude Oil Sales Offer Program is eligible to make an offer.
> Finley of the Baker Institute said that American refiners have to determine if they can use the reserve oil that will be released. If not, it may be of use abroad.
> “Each individual refinery is optimized for its marketplace and is built to run optimally on a certain type of crude oil and to produce a certain mix of gasoline and diesel fuel,” he told us. “And so it may be that the type of oil being offered from the Strategic Petroleum Reserve doesn’t perfectly match what the U.S. refiners are looking for and it might be a better match for the specific requirements of refiners elsewhere.” Kilian made a similar point. “If the oil released is medium sour, for example, a U.S. refiner specializing in light sweet crude would not be interested,” he explained. “There may be spare capacity at a refinery in Europe, however, that specializes in processing medium sour crude, so trade makes sense.”
US refineries are already operating essentially at capacity [2] for various reasons. So no matter what, the crude oil that gets released that can't be refined here has to be exported.
[1] https://www.factcheck.org/2022/07/u-s-selling-oil-from-the-s...
[2] https://www.marketplace.org/2022/05/23/u-s-oil-refiners-marg...
A perplexing aspect is why USA provides a strategic reserve to anyone other than USA. If the answer is "tactical price suppression" then let's change the branding of why USA has these reserves. If the reserves are truly strategic, then don't allow export.
Is there some sort of "branding" for strategic reserve I haven't heard of? Wikipedia seems vague enough[1] to not be contrary to this strategy.
If exporting crude oil that US refiners can't use anyway has the downstream impact of Americans getting the products they need (perhaps due to manufacturing overseas and ocean transport to bring those products here) then it seems like it's reasonably in the public's interest to do so.
I agree that petrol is fantastic. A great part of this federation of States is that if I really don't agree with the direction/taxation of an individual State then I can vote with my feet. It is disappointing that California's experiment with ending internal combustion transport, ending oil refining, and reducing nuclear electricity generation will be bailed out by lower energy prices by everyone else in USA due to the SPR. If the feds get out of commodity speculation and manipulation, the choices by California can shine on their own merits.
As far as I can tell, this is literally the only way to make such a strategy work.
If you can think of a way to keep that from happening that doesn't involve the global price of oil, you should be working for the white house and not sitting in your armchair.
But ultimately, we just sell to the highest bidder during price spikes, then wait for the price to decline and buy more.
The other option is to ban exports, but no reason to start there when we have a reserve.
Being able to counterbalance supply restrictions by the Middle East cartel is a very powerful strategic tool. It’s a clever move when you consider that the reserve can be viewed completely differently now that the US is a net exporter.
Sec 151(b) [The purpose of creating the Strategic Petroleum Reserve is] to reduce the impact of disruptions in supplies of petroleum products, to carry out obligations of the United States under the international energy program, and for other purposes as provided for in this Act.
Sec 161(d)(2) [Secretary of Energy may authorize a drawdown when] (A) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; (B) a severe increase in the price of petroleum products has resulted from such emergency situation; and (C) such price increase is likely to cause a major adverse impact on the national economy.
Sec 161(h)(1) [POTUS can authorize drawdowns if] (D) the Secretary of Defense has found that action taken under this subsection will not impair national security,
At that point it was less a question of price than physical availability. Scarcity causes price shocks... but also simply inability to obtain oil at any price.
That lack of access creates emergency scenarios, which creates motivational fear, which is the political/strategic power the embargo had.
By creating a credibly large stockpile, the US mitigated the emotional (i.e. emergency lack of access) implications of an embargo, which mitigated the strategic effect of the embargo (no fearful, rioting populace, less political pressure), as regardless of price rises the US would have access to oil.
So that's why it was created.
---
Unfortunately, or fortunately, a credibly-large stockpile also begs the question: why not use its existence during non-embargo times to trade some of its inventory?
By definition, you're a seller of last resort and huge volume, so you can always find buyers.
And if you expect the price to randomly oscillate, you can sacrifice some temporary amount for a decent profit, refilling when you can. Because remember, you don't actually need the resource unless there's a breakdown in oil markets (e.g. supply disruption or embargo). Any oil sitting in the SPR isn't making you money.
The risk scenario for the trading option is: you lessen your available volume too low (in comparison to US consumption/production) and oil producers uses the opportunity to embargo oil for political advantage again.
Given the specifics of the world now (US/Canadian production capacity from tar sands and fracking, and most of OPEC needing the revenue from sales to keep their economies solvent), an embargo doesn't seem likely.
At the time, petroleum was still relatively novel and poorly understood geologically --- how much existed and how long supplies would last would be hotly debated in an argument that continues to the present, though much geological and paleological origin and genesis understanding was achieved between the 1950s and 1990s. But in the 1920s (and for considerable time afterwards) there was great uncertainty as to how long useful access might persist. It was also abundantly clear that petroleum was an absolute game-changing factor (and instigator of) 20th century warfare.
The Naval Petroleum Reserve played a starring role in the biggest US political scandal until Watergate, the Teapot Dome Scandal of the Harding Administration (1921--23), leading to the first criminal conviction and imprisonment of a US Cabinet official (Albert B. Fall, Interior).
The Naval Reserve was transferred to the US Department of Energy in 1977 by US President Jimmie Carter, though the US Navy continued to direct the programme for another 20 years.
<https://www.energy.gov/sites/default/files/NPR_90_years_tri-...>
<https://en.wikipedia.org/wiki/Office_of_Naval_Petroleum_and_...>
I've wondered this same thing. My guesses are either...
- The oil hedge sizes at that level would be so massive, no counterparty could/would take the risk
- It would be market manipulation at a level beyond what what the SPR is, and crosses some line
but I don't know either.
They mean when China needs X additional barrels of oil, and they buy it from us, then they don’t buy those X additional barrels from Canada.
But a barrel is a barrel is a barrel, anywhere in the world.
So if we sell to France and Russia sells to China, it's no different than if we sell to China and Russia sells to France -> the "same" oil ends up in the same place and the same money ends up in the same place.
Selling it to a different country at the same price would just mean China becomes the next buyer and gets it from the next source at whatever the next price is. And because the other country didn't buy it that price would be cheaper.
The whole point is to lower prices, and prices are set globally.
Oil refineries are build to use a certain kind of crude, if you got crude from somewhere else you might have problems.
When there was a minor supply shock in the early 2000's some refineries in the US South got the wrong stuff and produced batches of gas that could dissolve the plastic float that indicates your fuel level and people ran out of gas because the fuel gauge would always read full.
(I went through a phase of filling the gas every time I went for a drive and it freaked out my wife and my son because they knew that story and thought the gas gauge had failed.)
[1] https://www.nrcan.gc.ca/energy/energy-sources-distribution/n...
[2] https://www.canada.ca/en/natural-resources-canada/news/2022/...
[3] https://www.woodmac.com/news/opinion/do-fugitive-emissions-o...
There's also the potential that selling to China was a nice way to test the waters and see if that impacted Russian sales at all, but the reserve is auctioned off so that may not play a factor at all in the actual sale.
It could be part of a back room deal to limit their purchases of Russian oil though.
https://oilprice.com/Energy/Energy-General/China-And-Russia-...
https://www.youtube.com/watch?v=C2zIOMp0RSA
She addresses additional related misrepresentations from conservative media.
One source she cites is here:
https://www.factcheck.org/2022/07/u-s-selling-oil-from-the-s...
I do agree - it is a mistake to focus on where the oil is being sold. What is more interesting is that the strategic reserve is not being used strategically. I would argue it is being used ineffectually, the problems here go a bit deeper than what the SPR could possibly cope with. At this rate it is going to run out and not even make a marginal difference.
If an American oil company wants to sell their own production to China that would be OK. They shouldn't be able to use oil they procure from a release of the strategic preserve in my opinion. We store the oil to help buffer oil prices from interruptions in production.
And you want to rotate it anyway so it does not go bad.
You can make fuel last longer by storing it in a cool, dark, airtight place, and there are products you can add to make it last longer, but the general rule is that petrol lasts about 3 months and diesel lasts around 6, or at least that's what I've read.
Entropy, sadly, is an immutable and inescapable law of the universe.
For instance,
https://en.wikipedia.org/wiki/Alkene
is added to some gasoline to raise the octane but gas with a high Alkene (or Olefin) content goes bad quickly compared to other gas.
Note that if it's not stored properly, it can degrade due to water intrusion and oxidation, and it can just evaporate.
Since this is indeed a conservative talking point it's worth noting that the lifting of the ban was passed by a Republican-controlled congress over the objections of then-president Obama, who then signed it despite having previously said he'd veto any lifting of the ban, because the provision was tacked onto a "must-pass" omnibus spending bill. [1]
Of course the right thing here, if there is an actual problem, would be to have a debate about whether to put the ban back in place or make some law specifically about not exporting oil purchased from the strategic reserves, but apparently the Republicans would rather impeach Joe Biden for some reason.
[1] https://www.reedsmith.com/en/perspectives/2015/12/us-governm...
If you want to debate that, sure. It won't work because oil is a commodity. If the US cuts itself off from the global markets that would be kinda stupid (because then it can't swap paper for oil, which is a great trade). If it doesn't then any oil it supplies will have knock-on effects making the market price cheaper in some sense. Foreigners would still get about the same benefit.
China tried to ban Australian coal the other day. It was hilariously ineffective. They bought coal from other countries, and we sold coal to the people who just had their coal redirected to China. Net effect, we continued to enjoy the coal boom.
They can try to put that ban in place, but it is meaningless and quite likely can't do anything unless America tries to go full autarky which, ironically, would probably raise the gas price they pay. It is unbelievably tricky to have a commodity market that has 2 different prices for the same good and has any sort of international trade happening.
PS Indeed, due to the magic of markets, if the politicians succeeded there is every change US citizens would be worse off, because they could have traded the oil for something they wanted and then they ended up with something of lower utility. Starve China of oil & the US gets less iPhones for example. If that special gas was used to drive to the Apple store, the scheme would look pretty silly.
If it undermines the pricing China are getting from Russian, maybe it is helping the US tax payer.
The higher the price of gas, the less people killed by cars.
But you don't actually care about people, just that you can virtue signal that your willing to have half the world die off to save a gallon of fuel.
You asked
> > What I don't understand is why we're selling oil from the Strategic Reserve to China.
Yeah how on Earth could that even be a political question.
Calling such questions "right wing talking points" is the only inappropriate politicisation.
This might be true, but a lot of people see that and think "yeah right!". The problem when topics become political is any intelligent discussion gets suffocated.
> We store the oil to help buffer oil prices from interruptions in production.
Sort of, but it's a bit more nuanced I think (right or wrong).
From evergy.gov: ---- The Strategic Petroleum Reserve (SPR), the world's largest supply of emergency crude oil was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program. ----
You could easily argue that what they are currently doing is congruent with this mission by participating strategically in the global market.
I don't know that I agree with it being a good approach from my simpleton perspective, but I doubt it's being done as some sort of pro China move at least.
Seems pretty strategic as $5/gallon gasoline was really hurting consumers.
Is Zuckerberg trying to buy indulgences?
It’s just absolute hyper hyper hyper partisan nonsense.
Granted, her video may or may not be factually correct but you might as well get your political coverage from Putin himself if you care this little about where it comes from.