Economic Hostages and HYPE
The talking heads, as well as Mr. & Ms. Fickle Markets just do not get it. Are we not supposed to LEARN from our mistakes, … and strive to NOT repeat those mistakes?
The talking heads foolishly, keep hyping rising global crude storage with terms like “glut” and “filling storage to tank tops”. The global markets meltdown was triggered, not just by the banks with the collapse in housing and real estate prices, with hard to price derivatives and swaps; but, by low global crude storage tied to flawed economics of “just in time” deliveries of crude that made the entire globe victim to rising demand absurdly pushing crude prices above $100 USD to $149 ….
Just as the banks, and the markets, didn’t see a collapse in housing and real estate prices could happen; … the end users, the refineries, didn’t see global crude DEMAND would RISE, and rampant, unchecked, crude futures speculation, absurdly pushing crude prices above $100 USD to $149.
Having done my homework, in 2007 and 2008, I began e-mailing our publically elected Senators and Representatives in the US Congress, suggesting the USA consider selling up to 200 million barrels of crude from the Strategic Petroleum Reserve (SPR), advising that crude, at prices above $100 was economically unsustainable, and sales from the SPR could be replaced once crude prices dropped. The SPR was designed, and built, to take crude in, with provisions to getting the crude out. At the time, I wasn’t aware that the SPR still needed piping … back to storage feeding refineries, or to the coast to be shipped where needed by USA coastal refineries ...
Per the DOE, the SPR has had its share of problems that have needed fixing and the DOE was able to remove and move the crude.
DOE DEALING WITH PROBLEMS IN SPR SITES 11/27/1995
The Department of Energy has begun moving 72 million bbl of oil out of its Weeks Island, La., Strategic Petroleum Reserve site because a naturally occurring fracture threatens the integrity of underground storage chambers. Meanwhile, at other SPR sites, DOE is removing high levels of methane that have rendered some of the stored crude oil temporarily unusable. DOE said high gas content has reduced its access to about 130 million bbl, or 22%, of SPR inventory. More than 12 million bbl of crude have been treated so far, and degassing operations continue at a 270,000 b/d rate. DOE said the SPR’s emerge…
While, I got many e-mail replies to my suggestions, the USA sat on the SPR stock pile, and saw crude prices collapse … as I predicted. Apparently, Congress got the message because the SPR has been strategically, belatedly, fixed. SPR stored crude, as of 2014, can now be sold and transported away from the SPR, and in test sales, has been removed from the SPR.
US extends SPR crude sale delivery window
Washington (Platts)–14 Mar 2014 430 pm EDT/2030 GMT
Back to the talking heads …
For over a year now, the US government has been sitting on its hands, while OPEC, especially Saudi Arabia, has adopted a crude production strategy purportedly to “maintain market share”. This OPEC strategy has put many USA Energy Sector people out of work from really well paid jobs. The flip side of the lower crude prices coin, is that all the non-Energy Sector corporations, as well as consumers, are benefitting from lower costs of refined petroleum products.
IMHO, OPEC’s real goal is to bankrupt, and put USA Exploration and Production (especially shale crude) companies out of business. Otherwise, OPEC wants non-OPEC crude producing companies in countries, like Russia and the USA, to collude on production quotas to make prices go up. OPEC’s flawed strategy is doomed to failure because Russia might talk … but won’t cut production. The USA Exploration and Production (especially shale crude) companies are getting really efficient, getting more shale crude with fewer rigs. OPEC is gathering to meet this Friday.
It is clear the talking heads fail to grasp that low global crude storage tied to economics of “just in time” deliveries of crude is a really, really, really BAD idea that will lead to OPEC raking in plus $100 USD/bbl crude prices .. again.
The US Congress should authorize USA Exploration and Production companies to export WTI and shale crude if (a) commercial USA storage is above 30+ days, and (b) crude prices are above $70 USD per barrel. The US Congress should also authorize the SPR to sell up to 200 million barrels from the SPR if (a) commercial USA storage is above 30+ days, and (b) crude prices are above $75 USD per barrel. The combined USA commercial and SPR strategy should keep OPEC from causing, or contributing, to another global markets, and economies, meltdown. Further, speculation in crude futures by those who can NOT take possession of crude … should be globally limited to control harmful, economy and consumer impacting, manipulation.
The NEW global crude paradigm
The NEW global crude strategy, whether the talking heads get it, whether Mr. & Ms. Fickle Markets gets it, is already working, the end user, the refinery strategy is set. Refiners won’t be played by OPEC, or rampant, unchecked, crude speculation, absurdly, ever again, pushing crude prices above $75 USD to $149. So, YES, they’re filling the tanks, and they’ll take replacement crude, that’ll keep the tanks filled, and crude prices STABLE. Geopolitical risk, thanks to cheap prices, and nearly filled storage, is now covered.
Talking heads, PLEASE, do some homework on the price penalty of lower global crude storage and “just in time” deliveries of crude that made the entire globe victim to rising demand, and rampant speculation … absurdly pushing crude prices above $75 USD to $149 ….
—– more to follow —–
Have a great day investing, or trading …