"They" Must Be Reading The Blog -- October 29, 2015

Just a couple of days ago I suggested that we are witnessing a new phenomenon in the United States: the "establishment" of non-government strategic petroleum reserves.

Now, CNBC has brought up the same issue, asking whether we need the SPR any more. There is so much craziness in the article.

The lede suggests that the government plans to sell a lot of oil out of the SPR. In fact, they will sell on an annual basis, 5 million bbls, starting in 2018. North Dakota has choked back oil production and is producing 5 million bbls every five days; unfettered, in a national emergency, North Dakota could easily produce 5 million bbls every two days. And that's just the Bakken. The Permian is bigger and the Eagle Ford is probably bigger.

Then, the article suggests that the SPR oil sale will raise huge amounts of money to fund the government. In fact, we are talking maybe $2 billion. (5 million bbls x $50 = $250 million annually).

Whether it's $2 billion or a fraction of that, both are rounding errors when it comes to the US budget, deficit, and debt.

Then this from an analyst who apparently has never heard of the Bakken:

McNally says that in addition to the sales already planned, the government has been eyeing the SPR to fund another government project — highway funding and transportation.

"If this turns into a feeding frenzy and we sell down our entire reserve, that's where it could become a market issue," McNally said. "We better be sure we'll be at peace, and I wouldn't make that bet." 

According to the article, the SPR stands at slightly less than 500 million bbls. North Dakota produces over 400 million bbls as it is right now, and unfettered could easily double that. 

Another analyst has it partly right:

The barrels set to be sold are "hardly even a blip on the screen," he said. "Down the road it will have an impact [on oil prices], but not as much as other macro elements." 

But this is where he is wrong: bringing 14,000 additional bbls to market each day -- in a market that uses 9 million bbls daily -- will have no effect on price whatsoever. 

The article completely missed the opportunity to talk about the amount of oil being held back in North Dakota and why it is being held back.

By the way, there have now been two stories in the past week that suggests there is a relative shortage of light crude oil for refiners, particularly for refiners on the East Coast. One story was in the Wall Street Journal; the other story was posted by RBN Energy.