The SPR -- Updating Continues -- July 20, 2023

Locator: 45152SPR.

Updates

July 20, 2023: she’s reading the blog.

Original Post

SPR: much ado about nothing.

• wow, not only a "nothing-burger" but incredibly irrelevant.
• consider the source;

This has been discussed before but not in depth.

The SPR issue -- OMG -- it took decades to fill, the Biden administration drained it in days and now it will take decades to fill.

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Data Points

Demand:

• US crude oil demand: max to date -- about 21 million bopd -- and that's on a good day.
  
• US crude oil demand, lowest point during Covid-19 lock down, link here:
• approximately 14 million bopd, January - March, 2021; 
• if that's the average, maybe down to as much as 13 million bopd
• why this number is important: that's how fast "we" can drop gasoline demand voluntarily if necessary.
  

US crude oil production:

• 13 million bopd

US crude oil in storage:

• crude oil in the SPR in 1H2023: 350 million bbls.
• crude oil in commercial storage in 1H2023: 460 million bbls; link here.

Narrative: 

• supply: during Covid-19, which was a voluntary lock down for the most part, demand dropped to less than 14 million bopd
• demand: US production under a "unhelpful" administration and with WTI unable to sustain a price greater than $75 is producing about 13 million bopd
• net: at worse, just using those two data points, the net delta for oil demand / oil supply: a shortage of one million bopd
• commercial crude oil: 460 days
• SPR: 350 days
• total: 810 days

US crude oil production with a helpful administration, $100-oil, and/or a geo-political emergency:

• minimum: 16 million bopd; link here.
• my hunch: max production could trend toward 20 million bopd within 365 days under "max-case" scenario.

So, where's the choke point?

• upstream
• midstream
• downstream (out-the-door)
• downstream (last mile)

Other comments

• some say selling oil from the SPR was done for financial reasons (deficit, debt, budget imbalance, additional Congressional spending, whatever)
• this is the story as being reported by Reuters, June 30, 2023, link here
• US to buy 3.2 million bbls of oil from four companies to continue refilling the SPR
• bought at an average price of $72 / bbl
• originally sold at $95 / bbl
• paper profit: $23 / bbl = $74 million
• fiscal year spend, 2023: $4.81 trillion
• = 13,178,082,192 = $13 billion / day
• $74 million / $13 billion = 0.0569 = 5.75% on a daily basis.
• the entire SPR at a $25 / bbl paper profit: $8.75 billion
• the entire SPR at a $25 / bbl paper profit = $8.75 billion = 1.8% of the total US budget

At one time I might have argued the same point. If I did, I was wrong.

The real reason to release crude oil from the SPRR was a political decision as noted by Reuters and had nothing do with the deficit. The funny thing: American CPAs are calculating the paper loss and profit. The average American doesn't care.

The average American cares not what the US deficit and no one knows what the true US deficit is at any one moment in time. But sixty percent of Americans know what they pay for gasoline on any given day.

To recap:

• way more oil in storage than we need; SPR is irrelevant (don't take that out of context)
• releasing oil from thhe SPR was a political decision to warn OPEC about the cartel's attempt to raise oil prices (and hence gasoline prices just before the mid-term elections)

But there's more.

Am I being too sanguine?

No, the "new" SPR is shale, the unconventional oil.

To be continued.