Posted on 08/02/2002 7:19:37 PM PDT by blam
US stockpiles oil to avoid price shock
Bush learns a lesson from slump after first Gulf conflict
Julian Borger, Washington
Saturday August 3, 2002
The Guardian
Beneath the gently curving coastline of Texas and Louisiana, vast underground caverns are being filled with crude oil as part of Washington's war preparations that could be as important as the Pentagon's military blueprints. The caverns were once subterranean pillars of salt, but the salt has been dissolved and sucked out, leaving gigantic sealed reservoirs which for the past quarter century have served as the US strategic petroleum reserve (SPR). Last November, when the Bush administration began to think about extending its "war on terror" from Afghanistan to Iraq, the president ordered the reserve to be filled to its 700 million barrel capacity.
This vast tank is intended to insulate the country, and the world economy, from oil price shocks of the sort experienced during the Gulf war in 1991. The ensuing slump cost the first President Bush his job.
Since the presidential directive in November, crude oil is being poured into the caverns at the rate of 150,000 barrels a day. According to a US energy department schedule, it will continue filling up at that rate for the rest of the year.
Adam Sieminski, an oil analyst at Deutsche Bank in London, said that US purchases for the SPR have accounted for half the total increase in demand for oil around the world this year, helping to buoy the oil price up at $25 a barrel.
The big question is whether the SPR can prevent the oil price shooting up to $50 or $60 in the event of a Gulf war, and reversing the US economy's faltering recovery.
That recovery is arguably already endangered by the US government's return to deficit spending largely as a result of its $355bn (about £227bn) defence budget for 2003, approved by the Senate this week. That would be further bloated by contingency spending on a war. The Gulf war cost about $80bn in today's dollars but 80% of that was paid for by US allies. This time, no one else is going to foot the bill.
The defence deficit will put upward pressure on inflation and interest rates, but its impact could be dwarfed by a serious oil shock. The likelihood of that will depend on the success and speed of a US invasion.
If Saddam Hussein is toppled in a speedy strike, the only physical impact on the market would be a temporary interruption in Iraq's one million barrels a day supply under the UN oil for food programme, which could be easily compensated for by drawing down the US reserve, which can supply over four million barrels a day for three months.
President Bush's father also turned to the SPR to mitigate the impact of the Gulf war, but many analysts believe he left it too late, announcing his intentions in January 1991, at the start of the coalition air campaign but several months after the invasion of Kuwait. The oil market got jittery and the price per barrel rose temporarily to $40. Most observers say the current administration will signal its intention to draw down the SPR ahead of any military action.
Richard Cooper, a former CIA analyst who is now a Harvard economics professor, said the US might not even have to use much of its reserves.
"World demand is weak at the moment, and there's a lot of excess capacity, particularly in Saudi Arabia, but also in other countries. And I think that any shortfall from Iraq would, in relatively quick order, be made up by production elsewhere," he said.
However, Saddam could strike at other oilfields, terminals or tankers in the Gulf. Conceivably, he could block Saudi Arabia's exports of eight million barrels a day.
With that in mind, Mr Sieminski said, the US has sounded out the Germans and Japanese about using their reserves in coordination with the SPR. Together, they could pump nine million barrels of oil a day on to the world market, at least for a month.
However, there was an even worse "nightmare scenario". A prolonged conflict could trigger serious unrest across the Gulf and ultimately bring down pro-western regimes such as the Saudi royal family. (We can hope)
The emergence of a hardline Islamic state and the long-term interruption of Saudi oil, representing nearly a third of the world's known reserves, could send the energy market into a panic.
"In that case, you'd have very expensive oil, and the world economy would be in a lot of trouble," Mr Sieminski said.
The best idea I've heard so far is that Jordan would be allowed to control the Holy Cities and the U.S. would administer the oil fields.
Not to mention that they can use the money.
speaking of democrats, er i mean socialists, if anwar was open, this would not be a news item. if you think about it, the socialist agenda of the democrats has hamstrung our current administration in waging war. i have to admire bush for carefully maneuvering around several socialist icebergs before we strike...
At this rate the SPR will filled to capacity in something over a two years.... The SPR has a capacity of about 700 million barrels and stands at 578.4 million now.
|
Strategic Petroleum Reserve Inventory for August 02, 2002 |
|
|
|
Current Inventory |
To be Delivered |
|||
|
Sweet |
Sour |
Total |
Royalty-in-Kind |
Exchange 2000 |
|---|---|---|---|---|
|
210.7 million bbls |
367.7 million bbls |
578.4 million bbls |
17.8 million bbls |
15 million bbls |
| Note: | Royalty-In-Kind deliveries are currently scheduled to extend through April, 2003. Exchange 2000 deliveries are currently scheduled to extend through January, 2003. | |
| Delivery Schedule as of: |
| July 30, 2002 |
|
| Last updated 7/30/2002 |
The Strategic Petroleum Reserve is a U.S. Government complex of four sites created in deep underground salt caverns along the Texas and Louisiana Gulf Coast that hold emergency supplies of crude oil.
Inventory
Drawdown Capability
Past Sales
Past Exchanges
Financial
"...the president ordered the reserve to be filled to its 700 million barrel capacity.
Of course, this was followed shortly by:
...which could be easily compensated for by drawing down the US reserve, which can supply over four million barrels a day for three months.
So, this journalist is guilty of lazy reporting (aren't they all?)
If it can hold 700 million barrels, and yet depleting the reserve takes only the extraction of 90(days)*4mm = 360mm barrel, then where did the other 340mm barrels go? That isn't a simple mistake.
I think that's one of the things W is going for in this election. He wants a GOP Senate so he can get Constructionist judges and Anwar.
If he can't get that in 2002, he will try again in 2004. But the SPR can get us through until 2004.
Mystery wrapped in enigma compared to what really happens.
I'm old now but even when I was a child oil from Russia came here{just an example of the many untruths of "official" information}.
I recall something about VP Gore arranging for the sale of the Pacific Naval Oil Reserves that were "no longer necessary" as part of his "reinventing Government" initiative/scheme. I believe it was sold to associates of his mentor Armand Hammer, at considerably BELOW market value. Of course the media, which promptly reported any possible connection between Bush/Cheney and the oil industry, seemed to overlook this event. Tsk tsk.
Didn't Winston Churchhill say that too?
Yup. I remember that. They sold off a lot of reserves. They sold off a huge pile of bauxite(sp) down here that had been acquired and stored in the late 40's, early 50's. They hauled the last truck load out about a month ago. (It was a mountain)
When Oxy won by bidding as much as it did, we all laughed at them. They paid far too much.
There's another possibility: Occupying Iraq would allow for selling their oil to reimburse us for war costs - past and "present." Let's be creative here.
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