Saturday, March 14, 2020

Coronavirus and the Saudi/Russian Oil Price War: Trump Orders Energy Department to "Fill Up" the Strategic Petroleum Reserve With Cheap Oil

Click here to read the original Cautious Optimism Facebook post with comments

The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff views this as a logical move with no losers except Saudi Arabia and Russia.

Top off the Strategic Petroleum Reserve (SPR), do it at rock bottom prices that save the taxpayers billions, and stimulate a little more American energy activity and jobs at a time when Russia in particular attempts to bleed it dry with moneylosing predatory pricing.

Analysts estimate the SPR requires another 77 million barrels to reach full capacity. Assuming an average pre-price war barrel price of $60 and current purchase price of $32, Trump’s directive will save taxpayers $2.16 billion.

77 million barrels is not enough to fully counter Saudi and Russian combined production boosts of approximately 1.4 million barrels-per-day. Assuming the Department of Energy attempted to perfectly offset the price war’s production increases on a daily basis the SPR would be full after just 55 days.

However--and the Economics Correspondent is not an expert on the logistics of the SPR--if there’s an opportunity to expand the reserve’s capacity at all, now might be the logical time to do it and buy even millions more barrels on the cheap.

The Economics Correspondent only hopes that Trump and future presidents use the Strategic Petroleum Reserve as exactly that: a reserve for strategic emergencies such as a war or another 1973 oil embargo, not as a political relief valve to placate commuters every time market prices temporarily spike.

And speaking of temporary spikes at the pump, ever since shale oil has made America the world’s largest oil producer with private companies free of government monopoly cartels like OPEC, consumers may not have noticed that there haven’t been many of those major price spikes anymore.

Long gone are the sorts of “crises” drivers regularly confronted in 2000, 2002, 2005, and 2008. During those supply shocks the nation recycled old debates of production vs consumption and President George W Bush argued repeatedly with Congressional leaders that the solution was to allow more U.S. domestic production. In response the likes of Harry Reid, Nancy Pelosi, Chuck Schumer and Barabara Boxer consistently retorted that “More U.S. drilling won’t lower gas prices by even a few pennies per gallon.”

Which side has been proven right?

Read more details in the Washington Examiner's article at:

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