Can SPR Offset Lost Iranian Crude?

[ceo_energemsier + 1,818]

On 9/26/2018 at 3:47 AM, Marina Schwarz said:

Opinions among the big guys in the industry seem to differ. Some say it will bring prices down by a couple of dollars and others doubt it will have any major effect. What say you?

Please see my other posts on this topic. The price may come down but it will be minimal and wont be sustained for too long. SPR is not the solution for price control but a solution to a disruption in crude oil supply to US refineries.

[Dennis Coyne + 82]

5 hours ago, jaycee said:

I have had a look further online and found a book by the US Congressional Budget Office which states there is no fixed plan for how the sales will work. So prices lower than market is an option. There is even mention of using the futures market at one point.

Quote

Specifically, assume that the government chooses a volume to release (for the volume-setting process), a release price (for the single price-setting process), and a price-volume relationship (for the multitier price-setting process) so that the government can sell SPR oil at the same price using all three mechanisms……………….

In sum, any decisions about what type of sales mechanism would be most effective should reflect an assessment of the relative benefits of each process-in terms of its contributions both to lowering oil prices and total oil imports as well as the subsequent benefits of those changes for the overall performance of the economy. Those benefits may differ depending on market circumstances.

End

Regards US economy being fine at over $100 4 years ago maybe different now. Many industries may have got used to the low prices and it is causing them problems,  I am sure the farmers will complain if asked just to save some money, add in the fact a lot of industry is now having to relocate to the US it adds in many new consumers of oil products who need low prices to compensate from having to return to the US. In the end Trump can argue many reasons that the US is in an emergency as he is the POTUS. He is good at arguing against most conventional wisdom on many fronts and then acting on his conclusions without anyone stopping him which I believe would be the case here.

Cant find anything on international agreements stopping Trump from selling as much as he wants unless The 1975 Second Sinai withdrawal document signed by the United States and Israel which states ‘in an emergency the U.S. is obligated to make oil available for sale to Israel for a period of up to five years.’ I cant see that being enacted personally.

In the end its all speculation as he is not going to do it, hopefully he will and we can both be proved wrong :o)

On IEA strategic reserves see

https://en.wikipedia.org/wiki/Global_strategic_petroleum_reserves#International_Energy_Agency_reserves

"According to a March 2001 agreement, all 28 members of the International Energy Agency must have a strategic petroleum reserve equal to 90 days of the previous year's net oil imports for their respective countries."  For the US 90 days of average net imports for 2017 is about 339 Million barrels. So only 321 Mb is available, about 73 days at the 4.4 Mb/d maximum release rate.

[jaycee + 348]

11 hours ago, Dennis Coyne said:

According to a March 2001 agreement, all 28 members of the International Energy Agency must have a strategic petroleum reserve equal to 90 days of the previous year's net oil imports for their respective countries."  For the US 90 days of average net imports for 2017 is about 339 Million barrels. So only 321 Mb is available, about 73 days at the 4.4 Mb/d maximum release rate.

Didn’t see that one. Tell me though how many international agreements has Trump broken so far since taking office? 2 I know off and not small ones, Trump will do what he want when he wants regardless of what the rest of the world wants.

Just realised the fatal flaw in the global agreement or more accurately the way round it. If there is an emergency clearly you would have to use oil so it would go below 90 day supply otherwise what's the point in having an emergency reserve. So as I have argued all along all Trump has to do is to declare it an emergency which I am sure he will mange to manipulate his way round especially if there are votes at stake I image he will get the full backing of the Republican party. Our discussion it is now clear to me would seem to hinge on that point. Under a declared emergency situation he can do what he wants if not then we get to your argument where it clearly is more difficult.

Edited October 1, 2018 by jaycee
Clarification and addition of later paragraph

[ceo_energemsier + 1,818]

On 9/27/2018 at 8:24 PM, Rodent said:

there is some nuance here. "Trump administration is not considering a release from the U.S. emergency oil stockpile to offset the impact of looming Iran sanctions"

the us is indeed releasing spr barrels as part of a planned release per Congress. this is what they have been talking about for months. some outlets have confused the issue by insinuating the administration was releasing the barrels to lower the price of gasoline prior to elections. that morphed into releasing the spr to lower gas prices that are high due to Iran sanctions, which morphed into releasing spr to make up for lost Iranian barrels as a result of sanctions. 

spr is being released. Congress ordered this a long time ago. But events are not intertwined with Iran or high gas prices.

new headline today is a bit disingenuous if I understand the situation accurately. it makes it sound like it's not being released at all. that is not my understanding. they are simply not releasing it with the purpose of offsetting Iran oil exports. 

does anyone else have different facts?

Yes, the SPR releases are part of the law that Congress passed to make sales from the SPR till 2025 I think. Has nothing to do with Iranian sanctions. Media knows it, but just like every other thing, they like to spread fake news. half truths and outright lies!

[ceo_energemsier + 1,818]

On 9/27/2018 at 12:42 AM, Kaiser Soze said:

I think this just means US is leaving 100% control to Saudis.

Will Saudis play ball and increase OPEC production or 'be comfortable with $100 oil'?

No, the US is not leaving 100% control to the Saudi's. Saudi's and other OPEC members who can ramp up production as well as non OPEC producers will produce as much oil to supply the market and fill the void left by sanctioned Iranian oil. Everyone will be all over it to grab market share. US can also sell its growing capacity to replace the lost Iranian barrels, specially the condensates coming out of EF, Bakken and Permian and also the Marcellus, Utica.

[ceo_energemsier + 1,818]

On 9/27/2018 at 2:34 AM, jaycee said:

The price the oil is sold at will not be market rates the reason for the emergency sale will be high oil prices therefore to cure that the price will be set to alleviate that and can be as low as the cost price  I would suggest for maximum effect, depends on how hard Trump wants to exaggerate the 'emergency' of high oil prices.

I can not find the law you state that there is a limit to how much can be withdrawn from the SPR all I could find was statements on US government websites confirming the 4.4 million a day maximum withdrawal rate can you provide a link?
In addition I found cases where the law has been changed to allow specific sales merely for deficit reduction and nothing to do with national emergency so it would seem any law is subject to change relatively easily.

Subsequent news seems to have made this conversation mute however as the option is being ruled out.

The price of the oil sold under this SPR sale will be @ market price not below. This is not an EMERGENCY release, this has been approved by Congress and is part of the law that was enacted to sell crude oil from the SPR. Please see my other posts on this topic.  The last sale that took place under this law, the oil was sold at a premium over WTI!!!

[jaycee + 348]

9 hours ago, ceo_energemsier said:

The price of the oil sold under this SPR sale will be @ market price not below. This is not an EMERGENCY release, this has been approved by Congress and is part of the law that was enacted to sell crude oil from the SPR. Please see my other posts on this topic.  The last sale that took place under this law, the oil was sold at a premium over WTI!!!

I am not referring to this sale though as this was planned and is part of a long term arrangement to reduce inventory. I am proposing the case where Trump declares an emergency sale to combat oil shortage/high oil price, or more accurately a vote losing situation, which has been ruled out for the present.

[Manfred Kruger + 40]

 

The purpose of the SPDR is to protect the US from catastrophic events that can lead to shortages, price spikes and other potential negative fallout. It was instituted as a matter of “National Security” to prevent situations similar to those faced during the Arab Oil Embargo. The SPDR was never intended to be a price management tool.

The existence of strategic reserves to face potential supply disruptions makes sense. The only valid issue is how much oil is actually needed in those reserves.  

Oil consumption in the US has been relatively stable near 20 million barrels per day. US oil production has increased from less than 5 million barrels per day to the current 11 million barrels per day, and is expected to increase at an annual rate of roughly 1 million barrels per day for the next couple of years.

Based on that expected supply demand balance one can make a good case for a reduction of the SDDR. The smart way to do so is to release a predetermined regular amount, say 100,000 to 200,000 barrels per day, via market related auctions to the highest bidder.  

[ceo_energemsier + 1,818]

9 hours ago, jaycee said:

I am not referring to this sale though as this was planned and is part of a long term arrangement to reduce inventory. I am proposing the case where Trump declares an emergency sale to combat oil shortage/high oil price, or more accurately a vote losing situation, which has been ruled out for the present.

I doubt that he will do that, with this preplanned sale, there has been enough fanfare in the negative that would probably not sit well for an emergency release to combat oil price management for politically motivated aspects. Now if there is an oil shortage then he may do that.... now an oil shortage in the US at this time and going forward for the next few months does not seem likely..

1) we are just about @ the end of the hurricane season for USGC refineries and GoM oil producers to be affected unless there is another Harvey-esque event

2) The US crude supplies will not be affected by the Iranian sanctions and there is plenty of Shale production available and additional shale production can be brought online from the DUC's (drilled but uncompleted wells mainly in the Permian)

3) Barring any other Force Majeure situations , if the need arises the President may authorize the release of crude.

[Kaiser Soze + 14]

19 hours ago, ceo_energemsier said:

No, the US is not leaving 100% control to the Saudi's. Saudi's and other OPEC members who can ramp up production as well as non OPEC producers will produce as much oil to supply the market and fill the void left by sanctioned Iranian oil. Everyone will be all over it to grab market share. US can also sell its growing capacity to replace the lost Iranian barrels, specially the condensates coming out of EF, Bakken and Permian and also the Marcellus, Utica.

That's way too naive. Saudi cannot just 'ramp up production'. They need OPEC approval (which includes Iran) and there are infrastructure constraints (because of previous collapse in oil prices).
 

When the shares of O&G companies rebound (as earnings skyrocket), then you can say there is capacity to increase production (because only then companies can increase capex). Until then, we're heading for oil shortage.

[ceo_energemsier + 1,818]

24 minutes ago, ceo_energemsier said:

I doubt that he will do that, with this preplanned sale, there has been enough fanfare in the negative that would probably not sit well for an emergency release to combat oil price management for politically motivated aspects. Now if there is an oil shortage then he may do that.... now an oil shortage in the US at this time and going forward for the next few months does not seem likely..

1) we are just about @ the end of the hurricane season for USGC refineries and GoM oil producers to be affected unless there is another Harvey-esque event

2) The US crude supplies will not be affected by the Iranian sanctions and there is plenty of Shale production available and additional shale production can be brought online from the DUC's (drilled but uncompleted wells mainly in the Permian)

3) Barring any other Force Majeure situations , if the need arises the President may authorize the release of crude.

In the event of any Force Majeure situations

[ceo_energemsier + 1,818]

2 minutes ago, Kaiser Soze said:

That's way too naive. Saudi cannot just 'ramp up production'. They need OPEC approval (which includes Iran) and there are infrastructure constraints (because of previous collapse in oil prices).
 

When the shares of O&G companies rebound (as earnings skyrocket), then you can say there is capacity to increase production (because only then companies can increase capex). Until then, we're heading for oil shortage.

Oil company stocks are doing pretty well and have been for some time now. The oil companies can go raise capital fairly easy again, through various options at disposal including private equity.

I am referring to a number of US shale operators who have the option to ramp up their production across various basins Permian etc. , where  there exists a large amount of DUC's  , which if needed can be brought into production on a short turn around time frame. These wells are ready to flow oil and add a large crude supply.

Coming back to OPEC, given the market situation OPEC will more than likely approve increased production to offset lost of Iranian barrels. Saudi's are already working on bringing the type of crude and condensate to production status or increase production of those kinds of hydrocarbons to replace Iranian barrels.

 

[Kaiser Soze + 14]

42 minutes ago, ceo_energemsier said:

Oil company stocks are doing pretty well and have been for some time now. The oil companies can go raise capital fairly easy again, through various options at disposal including private equity.

I am referring to a number of US shale operators who have the option to ramp up their production across various basins Permian etc. , where  there exists a large amount of DUC's  , which if needed can be brought into production on a short turn around time frame. These wells are ready to flow oil and add a large crude supply.

Coming back to OPEC, given the market situation OPEC will more than likely approve increased production to offset lost of Iranian barrels. Saudi's are already working on bringing the type of crude and condensate to production status or increase production of those kinds of hydrocarbons to replace Iranian barrels.

 

Onshore wells can't hold the fort haha. 1 offshore deepwater basin is equivalent to something like 1000 onshore basins?

To flood the market you need offshore oil pouring in like in 2010-2013.

Most oil company stocks, including big oil, still haven't quite recovered? Look at schlumberger, haliburton etc.

Still at close to 10 year lows or something. Very depressing earnings - always talking about cutting operational costs, keeping it lean and nothing about capex.

[jaycee + 348]

1 hour ago, ceo_energemsier said:

Now if there is an oil shortage then he may do that.... now an oil shortage in the US at this time and going forward for the next few months does not seem likely.

Oil is not so high in price yet for the President to call Force Majeure I agree but what if oil hits $100, there clearly has to be a shortage then he could argue successfully or at least a strong negative effect on American industry who are used to a lot lower prices in the last few years. Whether we hit $100 though is the question, I do agree that is not likely.

[ceo_energemsier + 1,818]

1 hour ago, jaycee said:

Oil is not so high in price yet for the President to call Force Majeure I agree but what if oil hits $100, there clearly has to be a shortage then he could argue successfully or at least a strong negative effect on American industry who are used to a lot lower prices in the last few years. Whether we hit $100 though is the question, I do agree that is not likely.

I do  not believe that the SPR crude oil release under Force Majeure would be an oil price of 100$/bbl , by Force Majeure I was referring to natural disasters of any kind and other unforeseen situations related to natural disasters, accidents of that nature etc.

The price of oil being high is a matter of the person or group of people or a particular group's interests, for some where it is now is high for some , it is a good price range , for the O&G industry the last several years have been painful due to the lower oil prices.. yes now this price range is good for growth investments and future energy security

[ceo_energemsier + 1,818]

2 hours ago, Kaiser Soze said:

Onshore wells can't hold the fort haha. 1 offshore deepwater basin is equivalent to something like 1000 onshore basins?

To flood the market you need offshore oil pouring in like in 2010-2013.

Most oil company stocks, including big oil, still haven't quite recovered? Look at schlumberger, haliburton etc.

Still at close to 10 year lows or something. Very depressing earnings - always talking about cutting operational costs, keeping it lean and nothing about capex.

Onshore wells do not produce the volumes compared to offshore wells (in the US) (-however some onshore wells have done pretty well in production volumes)

However, onshore wells can be drilled and completed and brought into production in a shorter amount of time and for a lot lower investment compared to offshore deep water and ultra deep water projects.

Compare that to say a shale basin well being drilled and completed @ a cost of 8mil$ versus perhaps 150mil$

What I was referring to is that US onshore shale producers have a large inventory of DUC's and if needed they can complete these wells in a shorter amount of time and ramp up production to try to meet certain supply-demand goals.  Seems perhaps they could bring 200k,300k,500k bpd from DUC's in the short term basis and if demand requires they may drill and complete more new wells, much faster than offshore projects can bring crude into production for sale to the markets.

 

[jaycee + 348]

7 hours ago, ceo_energemsier said:

The price of oil being high is a matter of the person or group of people or a particular group's interests, for some where it is now is high for some , it is a good price range , for the O&G industry the last several years have been painful due to the lower oil prices.. yes now this price range is good for growth investments and future energy security

The price is too high just now for the one person that really matters and if it gets too high that he feels Republican voters may not vote for the party in November he will declare an emergency that is the situation as far as i can see. What other people think of the price I suggest is somewhat irrelevant as he decides the emergency.

[ceo_energemsier + 1,818]

5 minutes ago, jaycee said:

The price is too high just now for the one person that really matters and if it gets too high that he feels Republican voters may not vote for the party in November he will declare an emergency that is the situation as far as i can see. What other people think of the price I suggest is somewhat irrelevant as he decides the emergency.

Bottom line is , SPR is not going to replace the unsaleable Iranian barrels to the world, it may help a tiny bit and for a very short amount of time within the US but that will be a waste of effort at all levels. US has enough oil inventory and enough oil availability to use for refining without declaring an emergency and release SPR crude barrels to win an election. Probably a large number of voters who want to vote a certain way have already made up their minds.... and a declaration of emergency for lowering of crude prices and thereby gas prices by a few cents a gallon, in my opinion will not "sway" a block of voters. It would be a better attempt to reduce some "gas taxes" to lower the gas prices across the nation....

[Kaiser Soze + 14]

7 hours ago, ceo_energemsier said:

Onshore wells do not produce the volumes compared to offshore wells (in the US) (-however some onshore wells have done pretty well in production volumes)

However, onshore wells can be drilled and completed and brought into production in a shorter amount of time and for a lot lower investment compared to offshore deep water and ultra deep water projects.

Compare that to say a shale basin well being drilled and completed @ a cost of 8mil$ versus perhaps 150mil$

What I was referring to is that US onshore shale producers have a large inventory of DUC's and if needed they can complete these wells in a shorter amount of time and ramp up production to try to meet certain supply-demand goals.  Seems perhaps they could bring 200k,300k,500k bpd from DUC's in the short term basis and if demand requires they may drill and complete more new wells, much faster than offshore projects can bring crude into production for sale to the markets.

 

Ok good to know we are on the same page. 

I would highlight that the problem with DUCs is the oil reserves tend to sour and degrade in quality over time. So extra cash needs to be spent on identifying good quality DUCs.

On that note, producers need to be assured of higher oil prices so as not to get 'played out' again into doing themselves in.

As for offshore, as long as banks are willing to lend those monies, no issue with high quantum projects. On cash flow basis will be able to dwarf the onshore companies as long as banks allow for low borrowing costs. Of course, lots of speculation involved (and probably bound for another oil crash when that happens).

[jaycee + 348]

1 hour ago, ceo_energemsier said:

Bottom line is , SPR is not going to replace the unsaleable Iranian barrels to the world, it may help a tiny bit and for a very short amount of time within the US but that will be a waste of effort at all levels. 

The date of the midterms is 6th November which is short term after that it does not matter as this is all about votes and has actually nothing to do with reality as most things that go through Trump's head. It is now too late however to make much of a dent in oil prices in the US and that is probably the main reason he has given up on the idea. It could have had he pumped at the rates the SPR is capable of earlier but the POO was not high enough to justify it, I have explained why I believe he could have done that earlier in the thread.

[Jo Mack + 43]

The only purpose for releasing SPR would be to keep oil prices down.  We have around 800 million bbls in storage.There is a reason for having oil on hand since we can't afford a disruption of imports we ourselves require.  There is also a chance that the release of our strategic reserves won't impact prices at all.  Trump has juice with Saudi Arabia.  They may want to keep prices up, but know it is not in the world's best interest.  Or theirs.  They have the capacity and if Trump pushes the Saudis will release more crude on the market.  When the sanctions are slapped on Iranian oil in November, the Saudis will act.  I dont think releasing crude from the SPR is a wise move.

[ceo_energemsier + 1,818]

4 hours ago, Jo Mack said:

The only purpose for releasing SPR would be to keep oil prices down.  We have around 800 million bbls in storage.There is a reason for having oil on hand since we can't afford a disruption of imports we ourselves require.  There is also a chance that the release of our strategic reserves won't impact prices at all.  Trump has juice with Saudi Arabia.  They may want to keep prices up, but know it is not in the world's best interest.  Or theirs.  They have the capacity and if Trump pushes the Saudis will release more crude on the market.  When the sanctions are slapped on Iranian oil in November, the Saudis will act.  I dont think releasing crude from the SPR is a wise move.

According to the latest figures, the SPR holds 660mmbbls of crude. Saudi's has already indicated and are taking actions to replace sanctioned Iranian barrels with a certain grade of Saudi crude and condensate.

[Dennis Coyne + 82]

On ‎9‎/‎30‎/‎2018 at 5:38 PM, jaycee said:

uzDidn’t see that one. Tell me though how many international agreements has Trump broken so far since taking office? 2 I know off and not small ones, Trump will do what he want when he wants regardless of what the rest of the world wants.

Just realised the fatal flaw in the global agreement or more accurately the way round it. If there is an emergency clearly you would have to use oil so it would go below 90 day supply otherwise what's the point in having an emergency reserve. So as I have argued all along all Trump has to do is to declare it an emergency which I am sure he will mange to manipulate his way round especially if there are votes at stake I image he will get the full backing of the Republican party. Our discussion it is now clear to me would seem to hinge on that point. Under a declared emergency situation he can do what he wants if not then we get to your argument where it clearly is more difficult.

JC,

Trump could indeed declare an emergency, that might have the effect of raising prices, if people believed him.  If not, he would simply look foolish, but he does that a lot, in any case if the SPR is emptied during an "imagined emergency"  (as $85/b oil is no emergency at all), then the US would be vulnerable if a "real emergency" arose as there would be no strategic reserve if the Iranians set off a major war by blocking the Strait of Hormuz.  Now I am not suggesting Trump is smart enough to realize that is a poor policy, but I imagine you are smarter than Trump.

[Dennis Coyne + 82]

9 hours ago, Jo Mack said:

The only purpose for releasing SPR would be to keep oil prices down.  We have around 800 million bbls in storage.There is a reason for having oil on hand since we can't afford a disruption of imports we ourselves require.  There is also a chance that the release of our strategic reserves won't impact prices at all.  Trump has juice with Saudi Arabia.  They may want to keep prices up, but know it is not in the world's best interest.  Or theirs.  They have the capacity and if Trump pushes the Saudis will release more crude on the market.  When the sanctions are slapped on Iranian oil in November, the Saudis will act.  I dont think releasing crude from the SPR is a wise move.

JoMack,

It is not clear that Saudi Arabia is not currently producing all it can produce.  We will see in the coming months.  Why is $90/b oil bad for the Saudis?  They seemed to be doing pretty well from 2011 to 2014 when prices averaged over $100/b.

[Jo Mack + 43]

The Saudis have enough spare capacity along with Russia to add enough ctude to make up the oil Iran is not able to export due to sanctions and insurance unavailability on its oil transport.  When OPEC pulled back on production and created less supply, it impacted world economies eith over $100 a bbl for oil.  Then in 2014 OPEC overproduced to create low prices to kill the US shale boom.  Companies went bankrupt but the industry began to develop better technologies for horizontal drilling techniques and OPEC pulled back.  The Saudis have the spare capacity and other countries like Libya, and Venezuela become more stable more oil will come on line.  So, back to the subject at hand, high oil prices in the $100+ range really don't help exploration and development.  Stable prices are the best for all involved.  The US using the SPR isn't going to make any real difference.  We'll just need to buy the reserves again and probably at much higher prices.