I struggled with where to ask this, but I’m mostly interested in facts and maybe some educated guesses, so I’ll try it here in GQ. (Or FQ I guess – still not used to that.)
I’ve known for a while that we’ve been drawing down reserves to offset global petroleum shocks caused by blockades through the Strait of Hormuz. However, recently things are looking more dire:
The reserves have fallen below 300 million barrels for the first time since 1983, when the reserves were relatively new and still being filled up.
The current drawdown of 172 million barrels will be complete in a month or less and will leave the level at 243 million barrels.
The statutory minimum is 252.4 million barrels. Why we’re able to breach this is not completely clear, but probably results from declaring this an emergency.
The absolute operating minimum is variously described as 70 to 100 million barrels. After that the caverns the oil is stored in can degrade, and there are some issues with sludge making oil unrecoverable as well.
Something else called the practical operating minimum is 250 to 300 million barrels. Breaching that will put a strain on the pumps and other infrastructure. It appears we’re going to find out if that’s true or not.
Anyway, all that adds up to terrifying to me. Am I wrong? The markets seem jittery, but not in an obvious panic. What happens when we complete the drawdown? Will gas prices jump again? Or will we do another drawdown despite the risks? Will the market finally start to panic when they see the U.S. operating without the safety net that the oil reserves represent?
I’m not interested in blame in this thread, just in where we could be headed.
There are two kinds of declarations the president can make, for the more minor situation (a temporary oil shock) the statutory minimum is the 252.4 million barrels. But a President can also declare a major emergency–and there is no statutory minimum for this. Considering how frequently Presidents have declared national emergencies in the last 50 years, this is not an obstacle. As to your practical operating minimum it is simply that is simply where you still get your highest drawdown rate. When you go below that you can’t pull oil out of the caverns at fast. [there are several dozen caverns, and some of them will become empty, etc]. So when you get down to 70-100 million barrels your withdrawal rate is going to be a small fraction of what it was at 250 million barrels.
Oil is an international market so what happens when you get to this level also depends on what is happening elsewhere in the world. But I expect big gas price increases, and if price controls are imposed big lines. Frankly I am surprised that gas prices haven’t continued increasing massively.
Different sources give different takes on this, but generally it looks like extraction rates start declining in the range we’re at now and even more when we fall below 250 million barrels in a few weeks. At 70 to 100 million barrels, further extraction becomes impossible.
The question here assumes that oil will continue to be taken out and no new oil added. For the short term that will be true. There is a longer term putback, although the dates on that are uncertain.
Over 133 million barrels were lent rather than sold to companies required to return the same volume, with repayment premiums reaching 28%.
Trump’s 172-million-barrel release is slightly smaller than Biden’s 180-million-barrel release in 2022 after Russia’s invasion of Ukraine. Although far fewer barrels can be inputted per day than extracted, a return to previous conditions seems to be years not decades.
Now that we’re not in FQ, it could be that with a 28% repayment premium the emptying of the oil could just be a grift by Trump rather than a strategic necessity.