Re: [carfree_cities] rising gas prices - market manipulation
- On Thu, 20 May 2004, Patrick Kennedy wrote:
> the reason gas prices are rising are pure politics. the us governmentPatrick,
> has joined in the competition with gas/oil companies purchasing oil from
> those who extract it. they are then pumping this oil into the strategic
> oil reserves and because they are taking some of the oil that would be
> hitting the market the supply has dropped, prices are up...the reason???
> they are going to dump all of this oil on the market as (one of?) the
> october surpise and drop oil prices, give the economy a little bubble,
> and make voters think everything is a-ok. which its not, of course.
Thanks for the heads-up on this idea. I asked a former oil industry
consultant and he thought this idea didn't have merit. He thought the
President wouldn't squander the reserves like that, and that it wouldn't
be enough to make a difference. However, a government website indicates
that the President could easily do so, and that it could make a big
difference in market price for oil. It appears that the President has
fairly broad control of releasing the SPR and that doing so might boost
domestic supply by up to 20% or so.
That would be significant!
Whether the President is willing to take flack for using the reserves at
an inappropriate time is another question. Maybe (by whatever means) it
will appear to be a more appropriate time, so this might be a non-issue.
[Picture the combined effect on voters if the U.S. is under some new
threat or attack and gas prices drop significantly -- professional
political analysts surely have. Disclaimer: This statement is not
intended to suggest that the voting system is intact.]
My simple analysis and quotes come from the following government website:
The site states that the 2004 U.S. oil consumption total is expected to
reach an average 20.4 million barrels per day (MMBD). Using that as the
benchmark, opening the SPR up fully would evidently increase domestic
supply by up to around 20% for 90 days, then peter off slowly.
Now, how can the SPR provide so much supply?
"In mid-November 2001, President Bush directed the Department of Energy
(DOE) to fill the SPR to its capacity of 700 million barrels in order to
"maximize long-term protection against oil supply disruptions." Under the
DOE plan, the SPR is to be filled with "royalty in kind" (RIK) oil. As of
April 9, 2004, the SPR contained around 653 million barrels of oil -- the
largest emergency oil stockpile in the world. The SPR has a maximum
drawdown capability of 4.3 million bbl/d for 90 days, with oil beginning
to arrive in the marketplace 15 days after a presidential decision to
initiate a drawdown. The SPR drawdown rate declines to 3.2 million bbl/d
from days 91-120, to 2.2 million bbl/d for days 121-150, and to 1.3
million bbl/d for days 151-180."
When can Bush release it?
"Under EPCA, there is no preset "trigger" for withdrawing oil from the
SPR. Instead, the President determines that drawdown is required by "a
severe energy supply interruption or by obligations of the United States"
under the International Energy Agency. EPCA defines a "severe energy
supply interruption" as one which: 1) "is, or is likely to be, of
significant scope and duration, and of an emergency nature;" 2) "may cause
major adverse impact on national safety or the national economy"
(including an oil price spike); and 3) "results, or is likely to result,
from an interruption in the supply of imported petroleum products, or from
sabotage or an act of God." Should the President decide to order an
emergency drawdown of the SPR, oil would be distributed mainly by
competitive sale to the highest bidder(s). This would be accomplished in a
4-step process, including a "Notice of Sale," receipt of bids, selection
of bidders, and finally delivery of oil."
So if we trust the government's figures and its summary of SPR policies,
then the economy gets at around a 20% increase in oil supply for 90 days
at the say-so of the U.S. President (20.4 MMBD adds 4.3 MMBD becomes 24.8
MMBD). That should definitely reduce prices (from what level, we don't
yet know). Of course, the President has to give the order and then it
supposedly takes 15 days to reach the marketplace. Who knows what will
really happen as this reserve, to my knowledge, has never been tapped.
Could this then be one of any number of "October Surprise" type moves?
Hard to discount its viability, based on those figures.