The most important information I’ve been seeing in this thread is beatle’s posting of updated crude prices.
Seems to indicate to me that:
The release of Strategic Reserves oil is going to make no appreciable difference in end-consumer prices.
It’s going to be well into the season of cold temperatures before any of this Strategic Reserves-derived heating oil even finds its way to the market, because the stuff still has to be refined, and that’s kind of been the problem all along.
Now, shouldn’t the people in power, who are supposed to know a whole helluva lot more about this than we do, recognize that?
I know you want to separate the politics out of this, beatle, but I think that’s impossible. This smacks of a cosmetic move for political opportunity’s sake.
As Dick Cheyney put it, “The Clinton/Gore administration is dipping into the Strategic Political reserves.”
The release itself is not appreciable in a world market perspective, however reading reaction from key producing states, it appears that the symbolic gesture was useful in making a point. Of course, expecting consumer end prices to change overnight is a bit naive. Also note the continuing down-trend in prices, in part apparently
I assume that they placed their analysis in the framework of (1) Effecting market psychology, which in the week leading up to the release (as well as statements by OPEC ministers) clearly was in a bid-up frenzy. This seems to have cooled (2) making a symbolic statement to OPEC and other producing hardliners that supply cuts would be addressed by dipping into reserves – indicating the seriousness which the situation had reached. As the oil-market is not fully ‘free’ the political aspect is not without some weight. Paul Krugman had an excellent column on this yesterday in the Times. My favorite economist.
Well, no matter what happened there would be political squabbles about this, now wouldn’t there? Strategic reserves are by definition political, and the oil market itself is highly political. Your point? Do you honestly think any other president would not have taken a similar move and why not?
Collounsbury - I guess one person’s “symbolic gesture to effect market psychology” is another person’s “ineffective, cosmetic act.”
What, psychologically, should OPEC nations derive from the U.S. releasing from its strategic reserves not enough crude oil to meet our country’s needs for a day?
If the message was, “If you don’t give us enough supply at a reasonable price, we’ll provide our own supply through this reserve to undercut you. And we’ll keep going as far as we have to, all winter long,” that might cause OPEC nations some concern.
However, you, I and, most importantly, they know that’s not what is going to happen. There would be much, much more outcry if we continued to tap any deeper into the strategic reserves to influence market prices.
Ineffective? The market trend seems to be down now, the pyschology of panic seems to have been effectively broken.
What more do you want? Clearly the fundamentals are for higher prices than the past five years, the key was to break a hysterical speculative bubble that was emerging.
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Politicaly it was a statement that oil prices have reached levels which the industrial nations consider unsupportable (and not fully justified). You should not the fracturing of the OPEC consensus in the last few days as Mexican and Saudi ministers have openly questioned the position of Venezuela and others which are gunning for maximum prices. If you think this came out of nowwhere, I submit you’re being deliberatly blinded by your evident dislike of Clinton et al.
Many OPEC nations (and allied producing nations) are well-aware that pushing prices too high will have the effect of pushing down demand and provoking political reaction in the industrialized West. Short term, they are well aware there is little to be done, other than strategic interventions to alleviate spot shortages driven by speculation. Long term, historical trends teach them that concerted efforts will negatively impact their position.
Symbolically EU and American policy actions in the last few days have clearly signaled the limits have been reached and that in order to maintain their current, advantageous position, some loosening is necessary. On the other side of the coin, speculators have also seen that the trend is not towards prices higher than 35 or so and we have seen a return to the low 30s.
So, what more do you want?
I know that neither US nor OPEC ministers are all operating at this level of analysis. Your position does not fully comprehend the market dynamics. Try reading some of Krugman’s recent analysis of the situation.
I agree. And yet you are asking me to believe that the release of a paltry 30 million barrels of oil from our strategic reserves is going to stop prices from skyrocketing this winter, or significantly influence OPEC?
I’d say there are a few respectable economists who agree with my position, too. Greenspan comes to mind.
I also meant to respond to something you said earlier:
I disagree that strategic reserves are by definition political. I understand the context in which you might be saying that, but it’s important to remember that, as noted earlier, the reserves have only been used one before since the 1970s, during Operation Desert Storm, when the U.S. was facing supply and war issues.
The reserves are, by definition, a last resort in a supply crisis. I don’t think the idea of using these reserves to affect market prices was ever even considered in the past. That is politics.
I think this sets a very bad precedent, and will not have the desired impact.
• NYMEX light sweet was $31.72/bbl at noon, up from this morning’s $30.84 open
• NYMEX light sweet average futures ended Friday at $29.59
• OPEC wound up their summit, during the course of which they raised production quotas by 800,000 BOPD, although it was noted that they may not actually be able to deliver. They issued a press release that included the folowing:
• For Tracer: I think Southern Style has got you fixed up already, but I stumbled across this What A Barrel Of Crude Oil Makes
• Nobody in the press seems to be paying any attention to the price of gas; it closed Friday @ $5.186; in the industry, the feeling is that we’re way behind the curve on narural gas drilling.
• In their September issue, World Oil reports a rumored conspiracy to the effect that although the Saudis have said they’ll increase production, they (and other Arabic nations) will actually backdown their output. Market psychology can do whatever it does, but if the supply is really not there the price will reflect that. The supposed motivation is their apprehension about Joe Leiberman being in line for the White House. I’m not inclined to believe it; I think the Saudis et al probably realize whatever effect they might have on the market will at best be too subtle for the American electorate to appreciate.
A policy of releasing oil from our strategic reserves when the free-market supply diminishes, and replenishing the strategic reserves when the free-market supply improves, could have the effect of stabilizing prices over the long term.
In many peoples’ minds, price stabilization is a good thing. One of the Federal Reserve’s purposes, after all, is to stabilize the economy by raising interest rates during booms and lowering interest rates during recessions. We could use the strategic reserve to do the same thing with crude oil.
U.S. Refineries are already running at approximately 96% of theoretical capacity. This leaves refineries about one day per month for maintenance and repairs.
How is the oil that’s been released from this reservior supposed to get refined and into the market?
Hrm … if crude is this expensive, it means that the fact that our refineries are all running at 96% of their capacity is not the limiting factor in the current gasoline and heating oil supply situation.
So why is gasoline so expensive? Is it because the entire nation has switched to driving gas-guzzling SUVs, or is it because OPEC decided to throttle back crude oil production this year, or what?
I hate to revive seemingly dead threads, but this is an appropriate place to post this.
Three paper companies were awarded 1/3 of the 30 million barrels of oil released by the reserve. One of those companies, the only one to arrange adequate financing so that they could actually swing the deal, is right here in Tallahassee Florida.
Within 24 hours of the sale to this company being approved, the company resold the rights to the oil one of the major players.
Which makes me wonder several things.
How did the feds grant rights to 1/3 of the oil to paper companies with no history in the oil business?
How was the award determined? Certainly it wasn’t awarded solely to the highest bidders.
What are the political connections of these three companies and their agents?
Why was there no clause in the original sale that required the oil be refined for domestic use. (The oil was allegedly released to be refined in time for the winter heating oil season. News reports estimate 2/3 of the oil will wind up overseas.)
Lots more questions, but these seem to hit the high points.
The latter. This is actually going to be pretty interesting. I looks like they followed all the bid rules, but something smells to high heaven about it.
Hrm … I wonder if somebody didn’t propose adding a clause like this to the bidding rules:
“To be eligible, a company must have been in existence and in the business of buying, selling, or refining petroleum products for at least five years.”
… But it got voted down because it sounded like we were “limiting” the bidders to “big oil,” and as we all know, “big oil” is a secret illuminati cabal conspiracy for world domination.
The whole chain of events makes no sense outside of political considerations. These three businesses didn’t exist six months ago.
If one reads between the lines, it certainly appears that these people KNEW that something was going to happen, hence they set up their businesses. But why these people? They don’t seem (directly) politically connected. Two of the three couldn’t arrange the necessary financial backing to make the deal happen. At least one is a convicted felon that set up his “oil business” in his mother’s house.
One assumes that the local company that won the rights to three million barrels resold the rights at a profit. If proper bidding and award procedures were followed that would make them one of the HIGHEST bidders. And to then turn around and sell the oil to an already saturated refinery, in 24 hours, at a profit???
It reeks. It absolutely reeks.
Can anyone post a URL containing any details on the award?
I haven’t read all of the posts but I’ll throw this in. To answer the OP I think it will have a very SHORT term impact of lowering prices but no long term impact, basically a one time shock on the supply side. IMHO it is all political posturing. I am no oil and gas expert but I do have a little background, FTR I have a degree in Economics from a university in Dallas, Texas and took a few oil and gas eco classes. The only thing that will really bring down oil prices is reducing demand. Big oil has close ties to congress (almost as bad as the mining industry) and without going into a whole argument of how new refineries will only help a little, it is safe to say that as long as we consume WAY more oil than the rest of the world on a per-capita basis this will continue to be a problem. This brings up a million other arguments that would all be fodder for other threads.