Hello President Biden. Are you filling up or drawing down the Strategic Petroleum Reserve?
Oil Tops Highest Level Since Summer of 2022, Gasoline Prices Will Follow
After consolidating at the high end of a yearly price range, crude busted out of the range to a price last see in August of 2022.
Recall that President Biden pledged to refill the SPR at $60 after releasing the supplies to fight gasoline prices. There was a huge problem with his not so clever idea. Oil never fell back down to the price level he sought.
EIA Chart Notes
- The current SPR level is 350,980,000
- When Biden took off the SPR level was 634,967,000.
- The SPR is down 44.7 percent since Biden to office
- The SPR is roughly at the same level as in 1983
Biden’s October 18, 2022 Fact Sheet
Please consider this White House “Fact Sheet” from October 18, 2022
President Biden is committed to doing everything in his power to respond to Putin’s Price Hike at the pump, and he is delivering.
First, the Department of Energy (DOE) is issuing a Notice of Sale tomorrow morning for 15 million barrels from the Strategic Petroleum Reserve (SPR) to be delivered in December. This sale will complete the historic, 180-million-barrel drawdown the President announced in the spring, which has helped to stabilize crude oil markets and reduce prices at the pump.
The Fact Sheet Title
The White House Fact Sheet title is more than a bit amusing: “President Biden to Announce New Actions to Strengthen U.S. Energy Security, Encourage Production, and Bring Down Costs“.
What a Hoot!
Did Biden Strengthen Energy Security? Encourage Production? Bring Down Costs Other Than Temporarily?
The SPR is down to 1983 levels. Can someone in the Biden administration please explain how this strengthened security?
Biden also claims he is reducing inflation. Dear Biden administration, please explain where. Also explain how well the Inflation Reduction Act is working in practice.
The Shocking Truth About Biden’s Proposed Energy Fuel Standards
As a bonus, please note The Shocking Truth About Biden’s Proposed Energy Fuel Standards
The National Highway Traffic Safety Administration NHTSA did an impact assessment of 4 fuel standard proposals and compared them to the cost of doing nothing. Guess what.
Buried deep on Page 56,342 of volume 88 of the Federal Register, the agency makes this concession about its latest proposed rules: “Net benefits for passenger cars remain negative across alternatives.”
China Abandons Clean Energy Goals Making U.S. Efforts Painful and Pointless
Q: What about China?
A: China Abandons Clean Energy Goals Making U.S. Efforts Painful and Pointless
A Huge Backlash Against Climate Change and Immigration Madness Has Started
Please note A Huge Backlash Against Climate Change and Immigration Madness Has Started
I am pleased to report a global backlash against woke madness, climate change silliness, and immigration polices is underway in the US, Europe, and Australia.
Biden’s energy policies have made the US less secure on oil, more dependent on China for materials needed to make batteries, fueled a surge in inflation, and ironically did not do a damn thing for the environment, arguably making matters worse.
KNX news radio this morning: gas price rose 12 cents over night. Featured a gas station on Cesar Chavez in downtown L.A. with price over 7 dollars. A Shell station in Burbank was 6.40 two days ago. I think 7 is an outlier.
The SPR doesn’t need to be refilled, if there is an emergency, the US government will simply seize all the oil, gas and fuels it wants. It’s called the Defense Production Act.
link to fema.gov
It was used by Trump to force production of ventilators during COVID, it can be used again to force the production of oil, gas, fuels or candy bars.
You can’t seize what doesn’t exist. Oil production is not like a factory where you can suddenly run 24×7 and produce more goods on the assembly line or force a factory that makes product X to make product Y.
All the government can do is seize what’s available which would be 13 million a day vs 20 million demand. That leaves a hole of 7 million a day which means that everyone would have to learn to live on 2/3s of the amount of fuel they get now (including fuel used to truck goods, make fertilizer etc).
That’s why they have the SPR which can provide the missing 7 million a day for a few months time (until empty) in case of a true emergency (ie a rogue state say bombed Saudi Arabia or Saudi Arabia suddenly went rogue and stopped exporting or some huge environmental disaster on a world wide scale like a pandemic that actually killed hundreds of millions or billions of people etc).
Exactly
What About the SPR?
Didn’t we give a vast amount of that away to China, And other Foreign Nations, as well as used up a lot for ourselves. I don’t believe, if you believe them, that we have anymore SPR available to give away. I do not believe that our Military would be too keen with giving nearly all of it away, and especially to our supposed enemies. Then again what do I know, or anyone for that matter, as our Government works in a Giant Vacuum…
That was my original points above. NO ONE knows but a handful of crooked criminals.
True that the SPR, and inventory generally, are at the 80s level, but the US produces 5mn extra barrels per day compared to then. Looking at EIA data, the US needs an extra 2-3 mn of crude oil per day, so the almost 800 million barrels in inventory would cover over a year’s worth, compared to just a few months back in the 80s. This is without considering the fact that when you consider all fuel products, the US is self sufficient, since it produces a lot of gas (more than it needs).
I.e. there is less need to refill the SPR these days at past levels.
The SPR is now 350 mb. However, a good chunk of that cannot be pumped out.
Its the same with the oil stored at Cushing. Over time, storage tanks accumulate sludge at the bottom that can’t be used. Newer tanks are being built with drains that can be used to empty the sludge. But the sludge still ends up being counted in the storage numbers as long as it is still in the tank.
Cushing’s capacity is 71 mb. Present storage is 22 mb. Estimated unusable sludge is 20 mb. So there is actually almost no usable oil left in the tanks. Once we hit these levels, it makes it very difficult to operate as the sludge begins to interfere with oil flows.
Thanks for the good info!
“Cushing’s … present storage is 22 mb. Estimated unusable sludge is 20 mb.”
So Cushing is essentially empty.
They should be able to reprocess this sludge.
Yes. Which is a factor in the upward pressure on oil prices lately. Inventories are dropping all over the world because of OPEC cutbacks. Cushing is just one example.
The sludge can be reprocessed, but it isn’t cheap. Treatments include centrifugation, microwave radiation, solvent extraction, surfactant enhanced recovery, ball-milling and ozone catalyzed oxidation, and ultrasonic radiation.
DOES ANYONE KNOW what is ACTUALLY in the SPR other than a small group of insiders?
NOPE.
link to spglobal.com.
Every posting I can find, shows Biden stated that the US would start filling the SPR when oil got below $70..
The other stories was that the US Energy Dept rejected the bids for the oil, claiming the price was to high for the bids!!!
Hey Mish, you know you pushing “PROPAGANDA” cause several “PEOPLE” post on your site that Biden has restarted filling our strategic reserves..
Of course they don’t actually post a link to the “ENERGY DEPT” actually accepting bids!!
Yet they still buy the “PROPAGANDA” being pushed by the DEMOCATS in the US MSM and Gov’t!!
Here is a link to the eia website that shows the levels of the spr. Scroll down to the last two months and you will see the spr being refilled.
link to eia.gov
After that. Go f*ck yourself.
Debt doesn’t matter . I will mark that down and revisit with you at a future date .
The Gov payment on debt was not a issue for many years because even though the debt was going up the interest was going down so the service on the debt was not a big deal . That has changed in a big way. At 5% the debt starts to cost 1.5 trillion just to service and more must be borrowed for even more debt . Look at the chart it is in the rocket phase . Plus the government causing inflation see S&S cost of living increases house price explosion and so on . Two road projects put on hold during pandemic requoted at double the original price . The government as well as people are going to be spending more for less going forward .
PAPADAVE: do you REALLY LIKE TO FUCK yourself with Government released data. Professional oil traders NEVER USE Gov’t data, never. Those are headline.
The pros work behind the scenes and NO ONE on the outside, including me (who has insider channels, and my primary guy just retired: he wrote insider Newsletter not for public consumption). The real facts were there, so I will be floating around guessing from now on, as will you and anyone else who relishes fucking themselves with Gov’t data which is not real.
I am certainly not a pro. And I am certainly not privy to “insider” info. I can only work with what is available to the general public. Which is good enough for me.
And I will tell anyone who accuses me of spreading propaganda to go F*ck themselves.
“Government data not real”
It is somewhat fake or completely fake?
Government data is certainly real. How accurate it is, is another question.
A lot of folks who post comments here are of the opinion that government deliberately massages the data to suit their purposes.
I do not think that is the case most of the time. Though it probably happens occasionally. Either way, there is often no alternative data to rely on.
I see no reason for govt. to lie about SPR levels.
The EV thing will fall flat on its face. To ramp up , will need multiples of production
of certain inputs-lithium, etc. Never in history has the production of any major resource, silver, copper, etc even doubled in ten years. Dr Stephen Leeb wrote
“Red Alert” about 15 years ago and showed how China has made many trade deals
in Africa, Afghanistan etc to secure the renewable materials. So much of this
stuff, just like fracking, has been picked over, the West is asleep at the wheel. Peak CHEAP oil is past. If you think EV’s are pricy now, just wait. Add in costly petroleum for mining (lithium) and other materials; There aren’t tax credits big enough to support this. Tragic, the real answers are nat gas conversions of ICE autos and/or
small nuke reactors, which are now much safer; but politics is in the way…
NO ONE with a brain misses that bigger point: IT TAKES MORE DIESEL to mine the materials needed to achieve those LOFTY goals of the 2035 mandates. Those politicians will NEVER admit their stupidity and it may well be a PLANNED downfall. WHO KNOWS.
EVIL lurks in the talking points.
If the Biden administration was honest, they could buy a whole lot of oil in 2026-2027 at $70 or below. Serious backwardation in crude futures. But of course they are not and have not.
Or the government could have issued 100 trillion in hundred year bonds when interest rates were close to zero; paid off the national debt; funded social security and medicare; and lowered taxes.
Yes, we have people here who tout Oil market prowess without talking about Futures and Options. These comments here are generally elementary. That might be good for political discussions but it misses the GUTS of the markets and that is what I follow.
I also look at VOLUMES related to OIL MAJORS as those vols offer clues. Finally, PRICE TELLS ALL, so I measure ranges and use pullback and ambush setups to trade using PUT OPTIONS (short puts) and short calls to unwind positions. ALL very easy. I teach retired guys how to do it. They are my friends and we use a closed circuit Zoom call weekly when things get to be fun.
Domestic oil production will be all time high in 2023 and again in 2024. Electric cars reduce demand for oil. Really the only thing left to do is international. Lift sanctions on Venezuela, Iran, and Russia. Convince Saudi Arabia to end their output cuts. Maybe you have some great plan, idk. Lifting sanctions on Venezuela would have the added benefit of ending the flow of immigrants also.
I’m really curious to see how the oil markets evolve. Whatever the case, we’re entering a new Era considering BRICS+ countries will control 80% of known reserves once they expand in January 2024.
They began refilling the SPR in August. Levels increased from 346,759 to 350,980 by Sep 22.
Those refills were contracted when prices were much lower a few months ago. There might be a few more of those refills to go, but I am unsure. I do not expect to see any more new contracts signed with oil over $90 now. And it would not surprise me to see new draws announced if oil spikes again heading into an election.
Regarding the need for the SPR; there are some who argue it is no longer needed since the US has once again become the world’s number one oil producer at 13 mbpd. We could probably boost that a bit, and we can import more from Canada if needed. The SPR was more important before we came up with fracking technology to tap into shale oil.
Our long term oil reserves are not huge, but we have a crap load of natural gas. So there are a few places where we can substitute gas for oil if needed.
Biden was successful in bringing oil prices down by tapping the SPR. It dropped oil from $120 to $65. It probably made a difference in the mid term elections. If he tries it again, I am not sure how successful it will be, because there is less oil left to tap now.
In spite of the US producing 13 mbpd, OPEC+ produces 50 mbpd combined. Demand is just over 100 mbpd. So OPEC gets to control the price by limiting production if they wish. And they are. By cutting production, OPEC is reversing the effect from the SPR release. Oil has responded and gone up from $65 to $93.
No one knows what price the Saudi’s want (as they mostly control OPEC), but many speculate that they need somewhere between $90 and $100 to pay for their mega projects and keep their populace complacent.
There is very little the US can do to stop OPEC or the Saudis. It appears that we are currently negotiating some new defense treaty with Saudi that might get us some influence. But that remains to be seen.
My long term thesis on oil remains unchanged. Demand will keep increasing unless prices spike to unreasonable levels. Oil companies are no longer spending much to find more oil, and would rather focus on profits, than on production. Witness that US rig counts continue to drop even as oil prices are rising. So there will be constraints on supply going forward.
I suspect the Saudis will be happy with $90-$100 oil. Anything higher and demand is likely to fall, rather than grow. That seems like the sweet spot, where demand continues to grow, and companies are gushing cash flow.
Got oil?
Good overview!
Thanks. I try to deal in facts and reality.
At $90-$100 WTI, the oil companies I own are going to be paying 15-25% dividends or buying back 15-25% of their shares each year. A few are still paying down some debt, but many are already debt free and committed to returning 75% – 100% of free cash flow to shareholders. Its an opportunity to cash in that only occurs a few times in one’s life.
Last data I saw was the US consumes about 20 mbpd. Not sure how the 7 mbpd deficit is covered since US is exporting oil. Or maybe my numbers are off. Either way, seems like rock will meet hard place at some point, especially if interest rates stay at current rate or higher.
Find a graph showing just how much US oil production spiked starting in 2014 and you’ll see just how much new oil was produced. It was a lot. What was a 8 mbpd import situation since 1980 was now an export situation. Still is, but not for long. Sadly there are no new tricks in the hat left.
You are correct. The US officially consumes 20 mbpd and produces 13 mbpd. So it imports 7mbpd. So we are a net importer. I think we get about 3-4 mbpd from Canada and the rest from a variety of countries.
But it is “way more complicated” than that.
Virtually all oil is then refined into usable products like gasoline, diesel etc. In addition, we also import AND export those refined products.
In addition, most of our oil is light. While oil imported from Canada and Saudi is usually heavy, or sour. An over simplification, but essentially correct.
Refineries are designed to work with light oil or with heavy oil, but not both. So refineries that are designed for heavy oil, typically must use imported oil.
In addition the US also exports a lot of refined product.
There is no overall comprehensive analysis of whether we actually internally consume those 7 mbpd of imported oil or if some of it is net exported as refined product.
In addition, the US is a big exporter of natural gas because we produce far more than we consume. We export around 13 bcf of natural gas per day which is equivalent to around 2.2 mbpd of oil.
Long story. But yes, we are a net importer of crude oil.
Do you, as I do, use Options to play oil? Just Askin’? And if so, you would be mentioning Backwardation and so on.
Nope. No options. No shorting. I am not a very sophisticated trader.
Though I day trade a portion of my portfolio to enhance my returns.
great stuff Papa. thanks
Looks like team Biden is using a time tested strategy of sell-low buy-high with SPR. It’s going to work in the long run.
Not at all. They were selling at around $100 and contracted to buy some back in the 70s.
I remember when the media attacked Trump for wanting to fill the SPR at about $40. They said he was “subsidizing the oil companies”. Now they’re cheering Biden for filling it at $100. No bias there.
You can keep playing politics. I don’t really care. Biden; Trump; someone else. They are all the same. Whatever. I care about figuring out how to keep making money.
the nitwits who think the Ds are different from the Rs………..are just confirmation the competition in pax dumbfuckistan is truly like the film idiocracy. i’m happy it is such.
Papa, making money is one side only. HOW are you going to keep up with inflation. You will likely not going to be able to keep up.
Hi DJ.
The more money you earn, the easier it is to get by. In 2021 my net return on investments was over 70%. In 2022 over 40%. So far in 2023, over 20%. That’s why I am not worried about inflation.
“They were selling at around $100 and contracted to buy some back in the 70s.”
Looks like they used up the $70 fuel already – do not see an increase in SPR levels – only has been going down.
Nope. They added 3.2 mb since August. Its still there.
The SPR was already scheduled to be mostly depleted by 2028 anyway because it was considered less important now due to increased US oil production. They were already taking out around 30 mb per year. Biden just sped up the process.
Wait until oil is over $100 a barrel, then fill the SPR back up. Pay for it with deficit spending.
Double inflation whammy. Sounds exactly like something Biden will do.
You might want to consider my thoughts on how the SPR might be used even if it were full.
link to texaslook.substack.com
Martin Gibson
I read your article but was then too busy to reply.
Excellent article. It pretty much confirms what I already knew about the SPR and adds a bit more info.
Thanks Martin.
Peak oil never went away. Conventional crude oil production in the US flatlined in 2005. They always knew about frakking but it only worked if you could borrow money for free to pay your expenses, which they did from 2014 to 2021. Now with interest rates on the rise, frakking no longer makes sense. No other new oil is coming. Strat Pet Reserve emptying by almost a half. Russia, Saudi and the rest of OPEC arent helping. So it all pretty much fits. It’s also why those horrible, miserable electric cars are being shoved down our throats. It isnt about the climate. The cheap oil just isnt there anymore. Drive electric or dont drive at all. Charge up!
Fracking is more about technology making it cost effective to access the oil. Cheap money helps, but that is not required for fracking to continue.
And the technology keeps improving. Oil companies are actually increasing production with new techniques that lower costs while enhancing and extending recovery. Costs have dropped as low as $30/barrel with these techniques. Witness that US production is increasing, even as rig counts are declining. That is new tech that makes the oil companies even more profitable. So instead of borrowing money to increase production, companies are using these efficiencies to increase cash flow and pay down or even pay off their debts.
Papa, frakking is done until Biden drops the rates back to zero, which he will. In the meantime, we’ll have to count on recessions to drop the oil demand, as they did in 2008-2009 and during Covid. Only one frakking field is still increasing production — the Permian in Texas. Remember the Bakken and 13 others? Dropping and done.
First: Biden is not dropping rates to zero. And neither is Powell.
Second: The only operators who need low interest rates are the independents. And if they can’t afford to drill, they will sell to the majors. And the majors don’t need to borrow
Third: demand only drops in a major recession. Three times in the last 50 years. Without a major recession or a big spike in prices, demand will keep growing for the rest of this decade. Just like is has in 45 of the last 50 years.
Yes. Older fields are now declining. But that decline is starting to be offset with new techniques. As a result, US oil production has been increasing all year. It just hit 13 mbpd. If Biden wants even more production he can provide tax breaks and other incentives for oil companies to expand drilling. It wouldn’t take much to get to 15 mbpd for a few years.
US production will eventually decline, but that isn’t because we don’t have the oil. Its more about the oil companies focusing on profit over production. Which is why I remain heavily invested in them. Though I admit, to being 80% Canadian and 20% US in my oil investments. The Canadian companies are just too cheap to resist.
$33 tril in Federal debt (and state debt and personal debts and corporate debts) cannot be serviced at 5%. Its called a debt trap. Biden needs the votes of the old folks that need CD interest. After his 2nd term is cemented, the rates will have to fall or the whole thing is over. Hey, I appreciate oil as much as the next person.
I shall defer to your info on the oil fields. And watch. I have since 2006.
Yes Scott. Interest on the national debt is a problem. A problem that I have been hearing about for 50 years. I used to be concerned about it. I stopped paying it much attention about 30 years ago.
Now that I read this blog, I keep hearing about the high national debt and interest rates. Mish himself said that the Fed was crazy to think that they would be able to raise rates, let alone get to 3% from zero. The national debt was too high to allow it. Yet here we are at rates much higher than that.
I’m not a shale expert, but I read on X that there were a lot of rigs already drilled but not used because of the Covid demand collapse, and that now all of them have been used, implying a lot of the rise in production came from them. If this is indeed the case, then the easy pickings might be done.
Correct Suzuki. The number of DUCs (Drilled but UnCompleted) wells has plummeted.This has more to do with companies focusing on profit, over production. It is cheaper to complete those wells than to drill new ones.
In addition, companies are using new technology on existing and even on previously abandoned fields to revitalize and improve production. Its all about efficiency.
You are also correct when you say that companies start with their best fields (tier 1) then move on to tier 2 and 3 fields. However, with the new technique’s being employed, tier 2 and 3 fields are becoming more like tier 1.
Yes, oil production will decline in all fields over time. But the new tech is extending those time periods and improving profits. There are a lot of people who have been expecting a decline in US production already, but we are still modestly expanding production.
I do not know when US production will begin to decline. No one does. But I expect US companies to do very well now that they have lowered their cost to around $30/bbl while prices have risen to over $90/bbl. They will remain cash flow juggernauts for the rest of this decade.
“Costs have dropped as low as $30/barrel with these techniques.”
Some, or likely just one, operator, is able to show “no accounting losses” from one single specific already producing well, at $30/barrel.
Noone, would add any capacity, nor even look for oil a foot from where they’re standing, if they didn’t think prices would soon be more than twice that.
At current oil prices, if they were sure to be sustained; current interest rates aren’t unmanageable everywhere. But current interest rates, despite being anything but high in any meaningful sense, make long shots too risky. Many of the fields developed when money was free, would never have been even attempted today. Combined that with: The earliest fields inevitably representing the lowest hanging fruit. And you get……….
Mostly correct. Except that many companies I own shares in have breakeven costs ranging from $28 to $40 on their entire production. It’s certainly not just one well.
In addition, interest rates mean nothing to them because they are no longer borrowing money. They are paying down their existing debts with their current cash flow and many are already debt free. They can cover all their operating expenses with their cash flow, with lots left over for dividends and share buybacks.
And even with $90 oil they are in no rush to spend much on E&P. Some companies already have 40 to 80 years of reserves and are content to simply produce what they already have.
Seems backwards to empty SPR just in time for winter.
cause cheap electric is made from farts in wind
Nah, you’re thinking of natural gas!
Your analysis is LOPSIDED and only talks about OIL as a commodity driving us away from OIL BURNERS to electric but you are missing the fact that there is simply not the capacity to mine enough Metals, Lithium and so on to meet 2035 goals. I agree that PARTIALLY using Power (Hybrids) will make more sense along the way, esp if they can get Hyrbids to achieve 80 plus MPG and NO ONE, including Elon, has that as a goal. I once asked Elon directly: WHY are your cars all about ACCELERATION and WHY are you not producing an EVERYMAN/WOMAN’s VAN, which can haul goods, kids, Groceries and FAMILIES ON VACAYS AND AND AND AND achieve 80 plus MPG.
SILENCE from the Man who is supposedly saving the world.
Electric motors intrinsically have rapid acceleration.
Internal combustion motors do not.
Acceleration comes with the your choice of motors – it has nothing to do with Elon Musk.
USD closed at $106.66 also near all time highs but shy of last October’s $113. I sold calls on many of my oil stocks hoping to get called and assigned because these spike’s generally last a short while then plunge back down. Not sure that will happen this time around but if the Fed surprises in November all heck will break loose with USD, oil, stocks and later housing.
This is why everyone should have some type of hedge in these markets or cash out of the train and sit at the station. I’m also loading up on TLT just in case.
Calls are by their very nature NOT a direct hedge against losses (Covered Calls). So, would you better to hedge with unbalanced sold contracts (2 to 1?). Covered calls only MINIMIZE losses.
The definition of hedge from google:
limit or qualify (something) by conditions or exceptions.
Yeah, the $ is a problem. The E-$ market is contracting.
link to moneyinsideout.exantedata.com