Fifth Thought: Lame Blog Entry
Here’s a cravenly political move:
The Bush administration is moving toward releasing oil from the nation’s emergency stockpiles as a result of disruptions to production and imports caused by Hurricane Ivan.
Energy Secretary Spencer Abraham said yesterday afternoon that he had authorized negotiations with refiners for oil to be loaned on a short-term basis from the Strategic Petroleum Reserve. Officials said the Energy Department had received requests from refiners who said they were running short on supply.
At least “cravenly political” was my first instinct. Here we are, at the end of summer, when gas prices usually ease all by themselves. But this is no ordinary end of summer – oh, no. This end of summer also signals the beginning of Presidential Campaign Season. In fact, I remember Clinton doing something similar in the Fall of ’00 to help Gore. It’s called “the advantage of incumbency.”
(To abuse a bad old joke about tourists: if it’s campaign season, why can’t we shoot the candidates? Anyway.)
My next thought was, a lot of the Gulf Coast got hammered recently. We refine a lot of petroleum down there.
Third thought: Well, at least they have a good excuse for a cravenly political move.
Fourth thought: My drink is almost empty.
It does kind of look bad. Hard for us to tell if this is needed or not because of disruptions in the supply.
To give George Bush some credit here, he has resisted this sort of move previously when it was called for because prices were high.
Sitting in the oilfield I understand this move completely. U.S. inventories of crude are currently at a 5 year low. Ivan (most recently) caused over 1 million barrels per day of production to be shut in, not to mention the natural gas disruption. It destroyed at least four platforms in the gulf (30,000 bpd production), shut down a major new development project (Murphy Oil’s Medusa spar), and tore several very expensive deepwater drilling vessels off of their moorings and sent them adrift.
So we lose a million barrels a day of domestic production. We also lose all imports into the GoM at this time.
As of today, all shipping is being turned away from the Port of Houston (25% of U.S. refining capacity) due to the reemergence of Ivan.
Refineries work on volume. They require large feedstock volumes (crude) to work efficiently. The current safety level for U.S refining is somewhere near 200 million barrels (this is from memory so I may be off a bit). Below that refineries operate with reduced runs at much higher costs.
Given the increased hurricane activity this year, both production and imports have decreased in a strong demand market. Without this input, there well could be a fairly large price shock to industry and the consumer.
I
As far as I see it the strategic reserve is an insurance policy, I don’t see that there’s anything wrong with making use of it after being hit by a cat 5 hurricane.
Why buy insurance if you’re never going to make a claim?
I’ll concede to the Dems that Bush is not going to win any academic prizes anytime soon (though that doesn’t prevent him from being an effective leader), but I do have to stress that Bush and Chenney have a better than average understanding of the oil business and in this case I’m going to trust them to do the right thing. Not much of a story here.
Love the comment on “campaign season.”
Just wonder how many security databases you just got added to.
The end result of the “Cravenly Political” act of releasing the oil is that the Strong Bush supporters will think he did the right thing and the strong Kerry supporters will shrilly screech about the abuse of power. The rest will have to try and make an educated decision.
Thanks for the comments above. I had heard of the effeciency of refining before but hadn’t remembered it until reading the post.
People also need to remember the effects on the economy if the shortfalls due to the huricanes become problematic. And the huricane season is not over. With the cost of energy already effecting profits in many sectors, this could be another hit that the US economy (and thus the world economy) can’t afford.
Well I don’t really see how letting a shortage hamper production and supply of gasoline is a good political move either.
This is actually a valid use of the Strategic Reserve. To keep the supply of oil flowing through a series of natural disasters. Add to that the fact that this is being done without a lot of fanfare, and I don’t see how this can hurt Bush.
This is NOT a cravenly political move. The Bush administration has been adamant about not using the SPR for political purposes. Case in point – during the summer when gas prices were reaching record highs and Kerry was repeatedly demanding oil be released. Bush refused because the effects of releasing the oil would have been nil, given the country’s daily appetite for fuel.
So why is this not a craven move? Because the action was not an order to ACTUALLY release oil, but permission to NEGOTIATE for a possible release.
This was intended solely to calm the oil futures market, which has been jittery the whole year. Terrorism in Iraq? Let’s drive the price of futures up! Unrest in Venezuela? The sky is falling, let’s drive the prices up! Yukos in trouble in Russia? Yet another opportunity to drive prices up and make a profit on the futures! Gulf Coast refineries shut down for a few days because of a hurricane? Drive prices up!
The problem right now is the futures traders are raking in major profits finding every excuse to drive prices up. The SPR announcement was aimed squarely at these markets, because any possible release of oild would be absolutely NEGLIGIBLE.
Mark my words. By next week, the markets will have forgotten about those Gulf Coast refineries and no oil will end up being released.
This is just another example of damned if you do/don’t. When gas prices were over $2 a gallon, Kerry and company were screaming that Bush do something about it. Like what? The only options would be to annex Kuwait or release some of the SPR. So we release some of the SPR and Kerry will be screaming that it’s political.
What’s a Prez to do?
“nation’s emergency stockpiles as a result of disruptions to production and imports caused by Hurricane Ivan. ”
Oh no!!! Bush is releasing “emergency” oil for a national emergency, damn him.
Also, this is the beginning of a hurrican season, we are going to have a lot more to come through. I think that they may have blown their wad too early on this one, but then again I don’t know how long it takes the oil to get to market.
Ideally you would want the oil hitting the market around january.
cube
Hey, prices went back up in my area.
Didn’t oil go back up to about $48/b?
I don’t believe the oil reserves should be used, but, if they are, they are a temporary salve. There is plenty of oil in the pipeline, and delayed shipments. (According to Trilby Lundberg and other well regarded industry analysts.) The thing that desperately needs to be addressed is not the oil supply, but the refining capabilities ~ there hasn’t been a new refinery built in the U.S. in TWENTY FIVE years! We can be awash in crude, and still razor thin on gasoline/distillates. So when it’s time for a maintenance shut down, seasonal gasoline formula change overs (there are more than 25 different mixes that need to be accounted for, spring to fall and back again, for individual states), storms come ashore, a fire breaks out or a refinery just breaks down, there is no excess capacity to pick up the slack. Every refinery is critical in it’s own right and that is going to have to change. The whole country’s been operating on the the BANANA principle for so long (Build Absolutely Nothing Absolutely Near Anything) that it will be a nightmare to reverse, but essential to our self reliance and the economy going forward. Americans don’t want that refinery in the backyard, but they sure are fond of that SUV in the front…
Good point. I still don’t know why Bush hasn’t addressed the gasoline blends issue that is such a drag on our refining capacity.
If he got a law passed or ordered the EPA to reduce the number of blends to maybe 4 or 5, it would be a huge benefit. If he selected a good mix of fuel efficiency versus clean burning blends it would win him points with both business and environmentalists (at least ones that aren’t blindly partisan).
Does the Energy Bill that’s been stalled in Congress have anything to do with this? It seems like a no-brainer. I must be missing something.
As another petroleum industry type, I can back up what Mark posted above, and I’ll add this:
In the weeks before Bonnie/Charley/Ivan caused production and import disruptions, the amount of global oil supply at high risk of disruption (Iraq, Venezuela, Yukos, etc.) roughly equaled, perhaps exceeded, the amount of global unused spare production. Considering that most of the spare production is in Saudi Arabia, a country that faces potential disruption problems itself, $50/barrel and beyond no longer seems unreasonable if certain not-so-unrealistic scenarios play out.
As Dan Rather might say, the oil market is tighter than a…well, something or other.
Long term prospects? Sketchy. To make a very long story short, it seems increasingly unlikely that the growth in global production can keep pace with the growth in global demand. There’s even talk of a global Hubbert’s Peak approaching: zero net growth of global production, followed by permanent decline.
Anyway, Bush has stated before his belief that SPR should only be used in emergencies. I’m not sure this situation is that emergency, but it could be the prelude to one. We are teetering on the brink of a crisis if there is just one more significant supply disruption. This move is sensible and prudent in my eyes.
“When gas prices were over $2 a gallon, Kerry and company were screaming that Bush do something about it”
And when it was $1.50 Kerry was saying he would like to add a 50 cent tax to it. He was, also, silent when Algore suggested we should be paying $4.50 or more a gallon like they do in Europe.
Now that’s stypical Kerry Math…20 cents for the people tha tdo all the work and $3.00 for the scum that write legislation (ans insulate themselves from recessions).
Hang ‘em!!
Refineries have crying for the Administration to open some of the SPR. Gulf coast refineries have been running over 90% capacity for a long time now, and crude reserves for most have been less than a week. It’s the equivalent of living paycheck-to-paycheck as far as logistics are concerned. Refineries from Tampa to Lafayette geared down or shut down completely in anticipation of Ivan. If anything, the Bush team has waited too long to loan out oil reserves, probably from fear of it being interpreted by MSM as a “craven political move”. Overdue and very necessary.
What’s a Prez to do?
Why, surrender while there’s still time, of course!
i love the comment above, that bush was NOT getting permission to pump, just permission to NEGOTIATE. Sounds familiar. I’m guessing he’s pumping soon. And two years from now everyone’s going to remember it WAS permission to pump.
well, i can’t speak for crude supply, but i can speak for coffee. i import coffee, and due to the string of hurricanes nothing has been able to get into the gulf for weeks, so to fulfill my contracts to roasters i am currently trucking coffee from ny to the gulf. so, i can believe that this may not in fact be as craven a political move as it may appear to be.
Two comments:
1) Refineries have NOT been asking the administration to release from the SPR. Proof is that they have been operating at 95-96% of capacity–the only way they could do that is if they had plenty of oil to crack.
2) This is NOT a political act as there is historical precedent. When Lilly went through a number of years ago, the government released oil from the SPR to offset the closing of LOOP (the offshore platform where tankers unload and a MAJOR import point). Moreover, it has had no impact on prices….
the word on the street is that the release is only to deal with the shutdown in oil production in the gulf due to the hurricanes.
this is exactly what the reserve is for, so Bush is doing exactly the right thing. Again.
Imagine that.
fliippity – floppity …
May 19 – The White House has insisted there are no plans to tap the reserve, which was created for emergencies.
“We will not play politics” with the stockpile, Bush said.
“That petroleum reserve is in place in case of major disruptions of energy supplies to the United States,” he said. “The idea of emptying the Strategic Petroleum Reserve would put America in a dangerous position in the war on terror. We’re at war. We face a tough and determined enemy on all fronts, and we must not put ourselves in a worse position in this war, and playing politics with the Strategic Petroleum Reserve would do just that.”
Stephen, I think Terry McAuliffe hacked your website. 4 hurricanes devastating a critical area of both crude oil production and importation of foreign oil is exactly what the SPR was built for.
Well, Mark, isn;t that just my point?
It’s perfectly fine to change one;s mind about things once situations change…however, Bush seems to think that the only thing that matters is being resolute, unwavering, regardless of the circumstances…
BTW …
—-Fadel Gheit, senior vice president of oil and gas research at Oppenheimer & Co. in New York, said lending oil from the SPR to refiners is “too little, too late.”
Gheit also blamed President Bush for contributing to today’s soaring prices through its policy of augmenting the country’s emergency stockpile at a time when global demand and prices are high.
“He scared China and India and Korea and everybody else that we were anticipating supply shortages,” Gheit said, leading them to buy more oil than they needed and artificially inflating global demand. “When somebody spots the mayor loading up on bottled water in the supermarket, guess what they’re going to do?”—
http://www.dailybulletin.com/Stories/0,1413,203~21482~2422176,00.html
oops, sorry if that long url messed up any formatting …
I’ll have to disagree with Mr. Oil Analyst. The replenishment of the SPR has not been by direct government purchases. It has been through the Royalty in Kind program. Basically, all offshore oil production in the US is subject to a royalty tax on production. The RIK program was implemented to allow producers to pay this tax in barrels of oil instead of cash money. It’s been a pretty successful program (I won’t go in to the economics).
The primary driver for world oil prices (excluding future market speculations and the terror premium) is China. Their oil consumption has outstripped even the loftiest of demand predictions. Every last spare barrel of oil on the world markets seems destined to China. Oilfield speculation is that China has instituted its own SPR program and is actively pursuing it.
Outside of coal, China is an energy poor nation. They need to not only feed their growth, they need to ensure against its disruption. Competition for energy over the next ten years wil be fierce, and China has made it very apparent that it will do anything to ensure it.
TO: Stephen Green
RE: It’s Legit
That’s what the strategic reserves are for, compadre.
However, I think the impact of the hurricanes is not the total cause. I suspect that the efforts on the part of OPEC to jack-up the price of oil as a form of leverage to impact on the election is another factor. And it is probably more important than the stated cause.
We know, for a historical fact, that the Arabs do this sort of thing. It’s a ‘weapon’, as we called it in the 70s. But instead of an embargo, which would resemble a walk-out, they are doing what looks like a ‘sick-out’.
So, what can we do? We’ll tap the strategic reserves. It’s not like we can’t replenish them when things stablize, after the election.
Regards,
Chuck(le)
Chuck(le),
I have to respectfully disagree with you here. OPEC lost control of prices months ago. OPEC nations are pumping to capacity. Anyone who tells you otherwise is working with wildly speculative numbers at best, deliberately misleading you at worst.
Damfa,
China and India would be buying up oil anyway. They watch the news too. They know they can’t sustain economic growth without energy, and their supplies are at risk.
China isn’t just driving up oil prices, it’s driving up steel prices and other commodities as well. China used to export steel and steel coke. Now they import both.
To me, it would be wreckless in the extreme for the administration to pretend that maxing out the SPR is unnecessary right now.
Damfa-loon,
Try reading Mark’s and the other grwon ups posts before bloviating on tapping the strategic reserve.
As far as prices are concerned there are more then one factor involved in the way they are determined. I do understand that you probably did not learn basic economics in high school so concepts such as supply and demand may be ba bit beyond your grasp.
“Fourth thought: My drink is almost empty.”
Stephen, your priorities are seriously out of whack.
TO: Owen
RE: With All Due Respect
“I have to respectfully disagree with you here. OPEC lost control of prices months ago. OPEC nations are pumping to capacity. Anyone who tells you otherwise is working with wildly speculative numbers at best, deliberately misleading you at worst.” — Owen
It’s my own observation. There is too much of a ‘coincidence’ between the rise in crude prices over the summer and the forthcoming election. The so-called ‘loss of control’ could well be a sham.
Market factors would figure in by now, in my opinion. Wait and see.
If I am correct, the prices will not go down to pre-’lose-of-control’ levels until after the election. In this scenario they will likely go up until that time.
Regards,
Chuck(le)
TO: Owen
RE: Additionally
[1] Hurricanes normally do not impact on the price of crude, which is near record highs.
[2] Off-shore drilling platforms are designed to withstand hurricanes. Sure, we’ve had some bad ones, but I haven’t heard of the oil fields drilling/pumping capabilities being devastated by Frances, Ivan and/or Jeanne. Maybe I’m wrong. Have you?
[3] The strategic reserves are, for the most part, as I am aware, made up of crude. I’m sure there is some gas, diesel and fuel oil, but most of it is crude. Just tapping into the strategice reserve is not going to repair cracking plants damaged by the hurricanes. Will it?
[4] By the way, speaking of damaged oil refineries, how many were damaged? I haven’t seen reports on that. I don’t think there are many that are incapacitated by serious damage. most refineries are built of pipes. Pipes, generally, are better prepared to let wind flow through them, as opposed to walls, like the assembly building at Cape Canaveral. But even that great sail of a building wasnt’ demolished. It lost a lot of tiles, I hear. But that’s just siding and paint.
No. I don’t buy the government’s story about the hurricanes. But I do understand why they have put forward that story.
Regards,
Chuck(le)
[I believe in 'coincidence'. I just don't trust it.]
Just piping up from a location affected by the hurricanes: SW Florida.
There have been spot shortages lasting two-three days as gasoline supplies failed to reach dealers.
The entire port of Tampa has been shut down for three hurricanes, Charley, Frances and Ivan. Charley and Ivan also completely stopped trans-Gulf of Mexico shipping, including tankers from Mexico and Venezuela. No crude was making its way in; no refined products were making their way out.
No, this isn’t an end-of-the-world catastrophe. I really don’t know if it warrants opening the SPR, but lacking strong evidence to the contrary, it’s certainly arguable that this is a purely legitimate move.
Hi Mr. Chuck,
In response to some of your points:
[1] Hurricanes normally do not impact on the price of crude, which is near record highs.
Prices are near record highs due to several factors. Generally, worldwide increased economic activity post 9/11. But primarily a risk premium reflected in the futures markets. Russia, Iraq, Iran, and Venezuela have had major political issues, which directly impact the rise in prices. That, coupled with a very tight market has us where we are today.
The hurricanes exacerbate the problems for the U.S. as they not only shut down production from the GoM, they also impede shipping into this region. There
Nahanni -
I can see that you are amused by hurling baseless and childlike insults.
While I cannot pretend to have taken economics in high school, which they generally don;t offer in the public high schools (to my knowledge), the law of supply and demand is well-known to all, particulalry the oil industry, which must be gleeful by the record profits they are acheiving in the face of great demand for a commodity that has peaked in its global availability.
I am surprised at all the high-brow apologizing going around and excuse-making for an administration so closely linked to the oil business. After all, the rule these days is that academics and experts are just untrustworthy liberals anyway, and “common sense” + the government’s word is all we need to know about the world. It’s all part of the “Ignorance is Strength” campaign.
Oil is expensive, dirty and finite. Appropriately, climate change, which is causing bizzarre and severe weather patterns, such as the hurricane that harmed the oil rigs, is caused in part by burning too much fossil fuel.
well, just to show im an honest troll…
—They argued that warmer periods of temperatures have actually led to a decline in the number and severity of storms.
“We suggest that natural variability of storminess is the cause of Florida’s recent hurricane disasters,” they wrote. “In such times there is an emotional tendency to pin blame somewhere.”
McCain said during the hearing that human activities are contributing to global warming and require “real reductions” in greenhouse gas emissions. The United States is the world’s biggest producer of the gases, which come from automobiles, power plants and other sources.—-
http://www.alertnet.org/thenews/newsdesk/N15154338.htm
Any decision or event that, in the mind of the opposing party, would make the President look good in a tightly contested election, is naturally going to look political.
It is a natural political law proven with empirical data, just as valid as a natural physical law proven by physical data.
Not worth an argument. Get over it.
Wanted to add to sentence in previous post “Any decision or event that…would make the President look good….is naturally going to look political”
Add, “,and usually is.”
TO: Mark
RE: Thanks for the Information
“I thought I covered this in my first post to this thread. Here
TO: Mark
RE: Reading Material
Thanks for the link to Rig Zone.
I notice they indicate the ‘difficulties’ are somewhat ‘seasonal’. That the impact is shortly over; end of the season of storms. There is mention of the ’100-year storm’, but none of what we’ve seen to date has been called that.
Again, this leads me to believe that this sort of thing, the release of the strategic reserves, is not just a function of several hurricanes.
After all, the year of Hugo and another, what happened then? Was there anything ‘interesting’ going on with regard to crude prices based on OPEC?
Regards,
Chuck(le)
Damfa,
Save your sanctimonious pontifications and arrogance for someone else.
If you were truly as “educated” as you try to make yourself out to be you would understand the logic behind using a reserve to ease a temporary interruption of supply. Now if GW Bush was truly the way you LLL’s think he is I feel sorry for you. Why? Like the old bumpersticker that was popular in Texas about 20 years ago said “Let ‘em freeze in the dark”.
You know, I find it humorous the way people such as yourself love to bloviate about the “evils” of petroleum yet are some of the BIGGEST addicts to it. If you really were as “intelligent” as you make yourself out to be you would know that the “evil SUV” is not the major reason for the US (and the worlds) jump in oil consumption. It is plastics and electricity. Yup, from your DVD/CD’s to computers to cell phones to Polarfleece garments to Mountain Dew bottles to furniture and household goods to Soccer balls to the syringes your friends shoot their drugs with are all made out of that “evil Petroleum”. Energy consumption in this country has increased dramatically with the advent of the PC’s which are huge energy hogs for being basically an unnecessary to survival item. So, Mister or Ms. Holier-than-thou, I suggest you take a good look around you and start putting your beliefs where your mouth is and do your part to “save the planet” by stopping your use of petroleum products. You can start by turning off your energy hog computer and disposing of it properly.
As to your spouting the LLL mantra of “bizaare weather/climate change/ohmigawdpanicpanicpanic global warming” backed by the finest of the LLL pseudoscience I suggest you do some research into the subject. If you did you would find that the Earth has a history of rapid and radical climate change and that for the last 10,000 years or so we have been in one of the very few “quiet” times in that process. In plainer terms rapid and dramatic climate change is the NORM for this planet.
If you were truly as “educated” as you make yourself out to be you would realise that there have been Hurricane seasons such as this one, and there will be again. It is a natural occurance.
SPR
I agree with Stephen Green that tapping the Strategic Petroleum Reserve right now is a bad idea, but at least he plans on replacing it instead of just taking it out, and at least there have been major disruptions to…
Stephen, I’m afraid I must agree with Joe about your priorities. Shouldn’t your fourth thought actually have been first?
Mark,
Thanks for saving me some time responding to Chuckle’s questions.
Chuckle,
To expand on Mark’s post, see also this article at World Oil, written pre-Ivan:
http://www.worldoil.com/magazine/MAGAZINE_DETAIL.asp?ART_ID=2396&MONTH_YEAR=Sep-2004
Regarding Ivan’s effect, see EIA’s assement in the weekly outlook:
http://tonto.eia.doe.gov/oog/info/twip/twip.asp
And yes, platforms and mobile offshore drilling units are designed to survive hurricanes. I design them for a living. The question is: when was the design done? After Hurricane Andrew ripped through the Gulf after smashing Florida, MMS revised their offshore construction standards and released API RP 2A F. Analysis post Lili and Isidore in 2002 (back-to-back cyclones right through the heart of the oil patch) indicated that platforms designed to the old standard performed much worse than those designed since. Considering how old many of the currently producing platforms still are, and the lack of a requirement to upgrade, it can be expected that future cyclones will continue to knock out older platforms.
Frances/Jeanne: no oil platforms in their paths.
Bottom line: I agree that hurricane-related supply disruptions alone are not the emergency that SPR was intended to be used for. However, given that most analysts place the amount of global “at risk” production at least as high as, if not greater than, the amount of spare capacity, using SPR in the manner proposed doesn’t sound quite as cravenly political. It even seems prudent to me.
TO: Owen
RE: I’m Not Saying It Isn’t ‘Prudent’
“However, given that most analysts place the amount of global “at risk” production at least as high as, if not greater than, the amount of spare capacity, using SPR in the manner proposed doesn’t sound quite as cravenly political. It even seems prudent to me.” — Owen
I’m saying there’s more to it than just some bad weather in Florida.
Regards,
Chuck(le)