Oil prices surged to their highest level in more than three years on Thursday, as the number and volume of supply outages continues to rise. The odds of a significant shortfall in supply are also growing by the day. With U.S. midterm elections nearing, the more oil prices continue to rise, the more likely it is that President Trump decides to tap the strategic petroleum reserve (SPR) to tamp down oil prices just ahead of the November vote.
The 180-degree turnaround in the oil market from May is pretty staggering, even for an oil market steeped in volatility and uncertainty. In late May, rumors of higher output from Saudi Arabia and Russia led to a crash in prices, and led to speculation of another lengthy downturn. By late June, however, it isn’t clear that even a massive 1-million-barrel-per-day increase from OPEC+ will be enough to fill the worsening supply gap.
That means higher oil prices are likely. WTI has spiked by about $8 per barrel since last week, and continues to climb higher. “We are in a very attractive oil price environment and our house view is that oil will hit $90 by the end of the second quarter of next year,” Hootan Yazhari, head of frontier markets equity research at Bank of America Merrill Lynch, said. “We are moving into an environment where supply disruptions are visible all over the world… and of course President Trump has been pretty active in trying to isolate Iran and getting U.S. allies not to purchase oil from Iran,” he added.
As has been widely reported, the Trump administration has aggressively pressed Saudi Arabia to boost output to offset declines from Iran. Saudi Arabia has complied, promising to ramp up output to about 11 mb/d in July, up from less than 10 mb/d in May. It’s an astounding increase, both in terms of volume and the speed of the increase. Related: The Saudis Won’t Prevent The Next Oil Shock
But it still might not be enough. Outages in Libya, Venezuela, Iran, Canada, Angola and Kazakhstan will probably more than overwhelm the increase in supply from Saudi Arabia.
That raises the odds that Trump turns to the SPR to head off higher oil prices. “We think that WTI would not have to advance much further before the U.S. Strategic Petroleum Reserve (SPR) is brought into play,” Standard Chartered wrote in a note. “Higher gasoline prices, particularly in the Midwest, are likely to provoke a SPR release in the run-up to November’s mid-term elections.”
U.S. politicians have historically been pretty reluctant to draw down on stocks from the SPR. The operating principle is that the SPR is only to be used in the event of an emergency, a true supply crunch. A look back at past SPR sales shows how sparingly it has been used. The below list is from the U.S. Department of Energy’s website:
• 2014 March: Test Sale - 5 million barrels
• 2011 June: IEA Coordinated Release - 30,640,000 barrels
• 2005 September: Hurricane Katrina Sale - 11 million barrels
• 1996-97 October; January; April: Total non-emergency sales - 28 million barrels
• 1990/91 September, January: Desert Shield/Storm Sale - 21 million barrels
(4 million in August 1990 test sale; 17 million in January 1991 Presidentially-ordered drawdown)
• 1985 - November: Test Sale - 1.0 million barrels Related: How Important Are Egypt’s Gas Discoveries?
The norms surrounding the SPR have eroded in the past few years, however, largely due to the surge in U.S. oil production. The dramatic cut in net imports, combined with the general perception of abundant supplies, has diminished the political salience of the SPR. In 2011, when President Obama tapped the SPR in the aftermath of the Arab Spring and the outages in Libya, there was a lot of criticism about his political motivations. A few years later, the U.S. Congress is legislating sales of the SPR for budgetary reasons, essentially putting an end to 40 years of U.S. energy security strategy.
All of that is to say that the Trump administration will have no qualms about pulling barrels out of the salt caverns in Texas and Louisiana, and dumping oil onto the market to push prices down, especially as he faces political headwinds heading into the November midterm elections. The Congressionally-approved sales of the SPR, and the lack of uproar that it caused, would take the sting out of the political fallout from releasing oil from the SPR. Although, to be sure, the norms-busting President probably wouldn’t feel constrained by tradition anyway.
The oil market is tight and trending in a bullish direction, but the release of barrels from the SPR would be one of the few surprising developments that could hit the pause button on the rally in prices.
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By Nick Cunningham of Oilprice.com
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Supply and demand are tight for oil due to the accelerating demand for the product. Extend 4.6 percent annual decline rate on the SPR through 2024 and we are around 500 bazillion barrels, holding for an emergency release. There will be no SPR release in the absence of an external shock, which is always possible.
Canadians were robbed of financial security for having been baited like horses for carrots about a pipeline that would never be built. Now the government has purchased a private domestic unfinished pipeline for 4.5 billion with taxpayer money. Really?
These shenanigans have serious financial consequences. Does anyone care up there in the Great White North? For 10 long years the XL was strung along like a carrot by US leadership. To think that the US environmental agencies extended approval for the pipeline and it was never in fact built, makes no sense whatsoever - Canada has been set up and kicked in the mud.
Trump will be leveraging the US supply of oil and gas to extract further benefits from trade with foreign countries. Gas prices do tend to rise, along with interest rates in a tight, but eventually the perpetually fragile economic cycle falls into place. Cycles cannot be avoided regardless of who is president. Econ growth generally picks up for higher government outlays, record tax collection with less regulations and lower taxes for small business.
Still, President Trump doesn’t need to release any oil from the strategic petroleum reserve (SPR). The reason is that with the exception of the hyped loss of Iranian oil exports as a result of US sanctions, there is still enough supply glut in the global oil market to take care of the outages in Libya, Venezuela, Iran, Canada, Angola and Kazakhstan. The proof is that oil prices have been hovering around $73-$77 a barrel for the last three weeks. If there is a real supply gap in the market, prices would have shot far beyond $80 by now.
And even if President Trump does release some oil from the SPR, the impact on oil prices will be mild and short-lived against oil market fundamental positive enough to support much higher prices.
As for Iran, you are assuming that the sanctions will lead to a significant loss of Iranian oil exports. This is not going to happen. Iran’s trump card is the petro-yuan which has virtually nullified the effectiveness of US sanctions. That is why I have been saying that Iranian oil exports will not lose a single barrel of oil as a result of the US sanctions.
Another myth is that Saudi Arabia can raise its oil production to 11 million barrels of oil a day (mbd). Saudi claim that it can produce at least 12.5 mbd if needed doesn’t stand scrutiny. Saudi Arabia’s production never exceeded 10.4 mbd before with almost a million barrels of which came not from actual production but from stored crude oil on tankers and on land. Saudi Arabia is only able to raise its oil production by 400,000 b/d being the amount it cut under the OPEC/non-OPEC production agreement. Moreover, Saudi Arabia’s claim that it has a spare production capacity of 2 mbd is very questionable.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
on June 28 2010 under obama it was $2.13 per/gal and that was eighth yrs earlier also from Feb 2011 to Sept 2014 the price a gallon was NOT below $2.50 furthermore under obama gasoline averaged $.80 a gallon higher than under president bush liberals are entitled to their opinion but they are not entitled to their own facts
you can get an idea by using gasbuddy and scroll out 10 yrs
1) Declare sub $60 oil in the strategic interest of the US - to deprive anti-American actors on the world stage the petrodollars needed to harm us - and open up the Strategic Oil Reserve.
2) Create and announce credible plans to rapidly make enough pristine clean diesel and jet fuel from cheap, superabundant domestic coal to fully supply the US armed forces. A Nobel Prize in Chemistry was awarded a decade ago, for a breakthrough that greatly enhances the efficiency of doing this. It is high time that breakthrough made it from the lab to the manufacturing plant.
3) Create and announce a credible plan to rapidly wean any Americans still using residential heating oil off of it.
4) Break ground on a major nuclear power plant each month until we have at least doubled our inventory.
Everybody screams MAGA - but here's where it starts! TAKING CARE OF YOUR OWN! It's time to put the PEOPLE FIRST!
So, on an individual basis I see so much of the pain of higher fuel prices to be self-inflicted by the individual.
Under President Obama, the record gas price was reached the week of May 9, 2011 when gasoline averaged $3.965 per gallon. never a mention...that's over thirty five percent higher than today's average of $2.86.
I have a strong suspicion that the textbook you learned economic theory out of was colored red.
the prices shouldn't jump much above 80 before more fields come on line (who also shut down when price nears 40)
Our Frackers can produce us out of high prices.
God bless our wildcats!
Only in socialist/communist countries do governments control the prices, often forcing producers to lose money (look at Venezuela: with the worlds largest reserves of oil, their socialist oil company loses money and production has fallen) in an attempt to win votes. It essentially uses government to steal from some for the benefit of the politically connected.
If you want low prices, you should support free markets and freedom. If you want socialism, you're asking for the government to make everyone poor and products unavailable. In free markets bread (and everything else) waits for customers, while in socialist countries, people wait in lines for bread when they can find it.
Let them sell it to someone else like Europe at the fantastic prices they pay for gasoline.
The Faukland Islands also has a huge deposit of oil off their coast line.
It is supposed to be bigger than anything in the Arabian fields.
There is a time and place for everything. Maybe it is time to break the habit of getting our oil from people that have a price we can no longer afford.
That will take real leadership in the Congress and the Presidency of this country.
Shale is another possibility.
Right now the major car people are going to hybrids and electric cars.
We are talking 55 mpg on these cars or no gasoline required on the electrics and they recharge at 4 times less than the expense of a gasoline engine with no pollution period.
It isn't the time it happened to us before. Technology has moved on. Gasoline is a convenience not a necessity in the quantities we used before.
Trucks can and will convert over to natural gas as a fuel easily.
If OPEC raises the price, they are in danger of losing their market all together.
47.3 cents in primary and secondary excise taxes (Raised 40% in 2016 by the democrats)
2 cents on the underground storage tank fee
9 cents on the sales tax (as per the Tax Foundation estimate)
18.4 cents a gallon federal tax.
And that is for gas. Diesel is almost $1 tax per gallon.
Hard for Trump to overcome that. Overcoming democrats on a tax and spend binge is difficult.
on June 28 2010 under obama it was $2.13 per/gal and that's eighth yrs earlier also from Feb 2011 to Sept 2014 the price a gallon was NOT below $2.50 furthermore under obama gasoline averaged $.80 a gallon higher than under president bush liberals are entitled to their opinion but they are not entitled to their own facts
you can get an idea by using gasbuddy and scroll out 10 yrs
Same price if it was pumped and shipped from Saudi Arabia.
Remember the fight with the Natives over the pipeline going through their land?
How about the fracking going on all over the country ruining underground water supplies and causing earthquakes?
For what, greedy, unethical oil companies?
Of course I want to pay only a $1/gallon gasoline and forget the unhinged rantings of those who feed unicorns in their backyards on a daily basis. I certainly believe $1.50/gallon gasoline here in America is absolutely possible if it weren't for all the OPEC market manipulations and unreasoned fears how cheaper oil prices would crash some economies of oil-producing nations, especially now that America is pumping more oil.
I have stayed on top of the dynamics within the country of Iraq and know that they are on the verge of becoming an established legitimate nation once again. Iraq has been working w/ the IMF, UN, WTO and the UST to regain an RV of its currency. Intel says that the UST owns north of
$36 billion IQD. I will not elaborate anymore than that, its very complex but do the critical thinking.
Iraq already has contracts with over 200 countries to provide infrastructure improvements.
ofRegular in Maryland, then it was about 30 days ago.
https://www.scientificamerican.com/article/turning-natural-gas-pollution-into-gasoline/
Should I be concerned about the pain of people that continually make irresponsible decisions in this regard?
caused by the same one who murdered over 3000 people in the world trade center,the stoled your table cloths and now there stealing your crumbs as Nancy P. called them,,,,,
Trump should threaten to flood the country with oil from the SPR or cut off shipping American oil overseas. Both of these moves will destroy the dirtbag oil traders.
The slimy GOP senators, particularly murkowski guaranteed that shipping American oil overseas would have the effect of lowering prices. Instead, the price of oil has gone up. If it doesnt go down then all american oil needs to stay in the US. And as for the filthy anti american oil traders, they should be required to take physical possession of the commodity before they can sell it. THAT would keep them from speculating—a system where they could actually go bankrupt.
Gas is up $0.09/gallon since early spring.
The obummer years had the highest gas prices in American history!! 2011,12,13 and 14 that's a fact Jack!!
The price per gallon here is about 2.39 a gallon.
Why is Trump (and most of his predecessors) as well as the US Congress determined to bring Iran to its knees?
Why is superpower America waging a ruthless economic war against Iran?
Israel want Iran weakened if not destroyed, even though it is Israel--not Iran--that has developed and introduced nuclear WMD into the Middle East.
It is Israel--not Iran--that has initiated numerous wars (and orchestrated others) since its founding 70 years ago.
Trump's cruel acts are designed to placate the pro-Israel lobby which many consider the most powerful foreign lobby in existence.
In any event there is a logical upper limit on gas prices. Already companies like SwiftFuels can create carbon neutral clean gasoline drop in replacement for gasoline for about $3 per gallon from sawgrass and other "junk vegetation." The Navy has patents on a process to convert seawater into diesel fuel using electricity and off-the-shelf hardware - such a process could be run in the daytime using solar power alone (net CO2 neutral) for a cost based primarily on the cost of the solar power. These are but two of the alternatives already available - and the only reason they aren't the market champions is that they are still a tad more expensive than fossil fuels.
Every day we are one day closer to the day when solar power plus batteries achieves rough price parity with traditional energy in most parts of the inhabited world. That day currently looks to be around 2025, but rising gas prices will bring it closer.
The American public have no clue what it takes to explore for, lease the land, drill and produce oil welsl, get that oil to market, refine that oil into petroleum products, transport those products to wholesalers and then retailers and lastly into your tank.
When home owners who were sitting on what were their Toxic Loans were hit with such high gas prices along with an increase in the interest rates on those loans, many home owners just stopped paying their home loans, because they realized it would take much more to evict them from their homes than it would take to find another job if they could no longer afford fuel for their cars to get to work.
The combination of the two, (The double whammy) was the start of failed loan policies which generated those toxic loans, thus the home owners just stop paying on those loans which made the Tranches put together by the mortgage industry become transparent because their supposed AAA rating was divulged as being phony and thus the quick slide of the value of those loans. THE CRASH AT THAT POINT WAS INEVITABLE !@!
These crises simply don't happen when Dems are president. Not a whisper of blame assigned to obama from the media about the fact that oil peaked over $90/bbl and gasoline sold over $4.00/gal in many places during his regime. Then, it was the fault of greedy GOP business oligarchs.
I wonder why?
The market will sort this out as it always does by adjusting price to demand.
No, gas prices are $2.54/ gallon at a few stations and under $2.60/ gal at a LOT of stations.
is the media trying to spike prices with stories like this ?
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Dir sir,
Might you please posit the definition of an economist in lay terminology, as you do so comprehend it? Thank you in advance. How you define it will assist me to better comprehend your opinion, thoughts, commentary here.
I am basing discernment so far upon a definition put forward by, I.
B. Tucker, III, _"Survey of Economics"_, West Publishing Co., 1995. Unaware of how you define an economist, or if you're aware of that definition. I hope to not infer or posit disrespect, offense but rather to hopefully converse a trite bit. Often enjoy such conversation on equal footing, definitions can help locate that.
Gas was much higher early in Obama's 1st term, and stayed there for 4 years until us frackers/us entrepreneurs added capacity.
But don't expect MSM to print THAT!
Trump isn't responsible for the price of gasoline in America...It's not his problem...You want cheaper gas? Use less of it...Drive less...Take the bus...Car pool...Ride a bike...Take a walk.
And just watch the price come tumbling down....Bet on it.
The same people yapping about big oil, are having Amazon deliveries daily. Guess what that uses, a whole lot of distillate, which unlike gasoline is in very short supply. ICE have become far more efficient, in part because of CAFE standards, but at the same time average HP per vehicle keeps climbing. If we were content with the HP of cars 20 years ago, we'd be consuming far less gasoline.
Venezuela's oil production has fallen off a cliff, a warning to all of those that think socializing oil production is the better alternative. While fracking is imperfect, the view that it's tainted huge amounts of water supply is simply not based in fact. The problems are few and far between and the water table and oil are at very different depths. Yes, we need to make sure it doesn't become a problem, but it isn't at present. Fracking has also unlocked a huge amount of cheap natural gas, which has displaced coal electrical generation, and saved an enormous amount of CO2.
The world is transitioning from oversupply to undersupply. The Iranian policy will make this worse. While Saudi et al will fill some of the gap, that removes spare capacity from the market. That lack of spare capacity creates meaningful upside risk in the event of more outages. Unplanned outages have been exceptionally low, but we have precedent for Libya/Iran. Take a look at the chart in the STEO.
We shouldn't be surprised at an SPR release and the obligatory self-aggrandizing tweet. In the 2H of 2019 the Permian will have much more takeaway capacity and we can produce our way out. Until then, we're headed higher.
https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf
Oil is no longer attached to supply and demand. Goldman and JP Morgan are the largest buyers of oil futures dwarfing producers and end users. These two quasi-banks never take delivery. In every recession, oil rises before the recession. Because of the geopolitical tensions caused by Trump over Iran and with trade tariffs, the dollar has skyrocketed shutting off US exports and creating a dollar liquidity shortage in the commodities space. Oil is a hedge against the dollar.
Further, when one launches Tariffs, that causes all other currencies to automatically devalue without actually devaluing. Thus most emerging market currencies are at multi year lows and the Yuan has dropped 6% which is roughly the average of all other currencies.
Oil is going higher... Why? China has pushed counter tariffs against US Shale. They are the largest buyer of Shale. This will shutdown Shale just like the Trump Tariffs have destroyed US Farmers with Soy, Hog and Orange Juice counter tariffs. Once shale is off the market, that ends the arbitrage and oil goes up.
Trump has caused all this mayhem and doesn't really seem to have any idea what he is doing or where he is going. One thing is certain, any release of strategic reserves will have zero effect on the price of oil but will shut down Shale rapidly. Saudi would love that.
As for Iranian oil, China is willing to buy it all and a new rail line has been set up by China to handle delivery and there are talks for a pipeline. Russia now has two pipelines directly to China. China captured 12% of the global oil markets in two months with the launch of their Gold Backed Yuan oil futures contracts. Trump is simply not on the same mental page as Russia, Saudi, or China. His actions with Tariffs are extremely dangerous to the US Economy. It appears to be a nearly identical pattern as followed Smoot Hawley. Trump is living in some kind of alternate universe and hegemony is a real risk to the USA dollar reserve for the first time since 1945.
E-15 sells for a lower price, has a higher octane value and is a cleaner burning fuel than E-10. Scott Pruitt's EPA is NOT interested in Cleaner Air, or Lower Priced, Higher Octane Fuel. Scott Pruitt's EPA only seems interested in protecting the Oil Company Monopoly in the fuel market.
If you really want lower priced higher octane fuel, unleash 113 Octane Ethanol, and we will all be better off.
Do you have any clue how long it takes to build a refinery? 1 year? 2 years? NO try 5 to 7 years at a cost of tens of billions of dollars to build and operate. And you expect FOR PROFIT companies to do this just to lower prices so they can make less money? Does anyone know what the economic landscape will be in 5 years? Of course not. So who in their right mind would take such a gamble? Clearly anyone that really believes in building more refineries as an answer hasn't ever owned their own business or traveled to a foreign country.
And the SPR is just that. Strategic. What part of Trump's logic is strategic. Releasing SPR on a whim (without a true crisis) is idiotic.
Here's an idea: How about not bullying countries like Iran and China, interfering with sovereign nations' politics, war mongering and instead try being diplomatic for once?
The fossil fuel industry is the biggest backers of republicans who seem to live to cut their taxes and deregulate.