OBAMA’S PISSING IN THE WIND

Zero Hedge http://www.zerohedge.com/ with an outstanding piece on the ridiculousness of Obama’s blatant attempt to manipulate the oil markets so his diminishing re-election chances are bolstered. As usual, this moron has no idea how markets work, or the law of unintended consequences. He is doing wonders for making the Fourth Turning as chaotic and desperate as possible. OPEC is now being led by Iran, not Saudi Arabia. The release of 60 million barrels of oil from strategic reserves will be as effective on keeping oil prices low as QE2 was in reviving our economy and spurring the housing market.

The second article is from www.oilslick.com and details the reasons for the Strategic Oil Reserve. Two thirds of the reserve is sour crude, which many of the refineries in the US can not process. We are depleting our reserve of sweet crude and sending it to Europe. Brilliant “strategic” move by Obama. I really think Obama approaches life like it is a game and he is smarter than everyone else. He is a dangerous man. Four more years of this guy will insure the destruction of our country.

As The IEA-OPEC Nash Equilibrium Collapses, Is A 1973-Style OPEC Embargo Next?

Tyler Durden's picture

Submitted by Tyler Durden on 06/26/2011 11:13 -0400

Last week’s dramatic decision by the US administration to strongarm the IEA into releasing strategic petroleum reserves (of which the US would account for 30 million barrels, or half of the total), is nothing but yet another example of the hobbled and incredibly short-sighted thinking that permeates every corner of the Obama administration. Because as the WSJ reports, “the move by the U.S. and its allies to release strategic reserves of oil could provide a much-needed shot in the arm for the U.S. economy, but risks inflicting lasting damage on the already tense relationship between oil producers and consumers.” The move comes on the heels of the dramatic collapse in OPEC talks in Vienna two weeks ago when Saudi Arabia was effectively kicked out of the cartel, further confirmed by reports that the IEA consulted with Saudi (and China and India) in advance of its decision (more later). Additionally, “OPEC and the European Union are due to hold an energy summit in Vienna Monday that will be the first official meeting of producers and consumers since the IEA’s move, and will provide a platform for OPEC members to express their disquiet over the stocks’ release. However, OPEC’s biggest player, Saudi Arabia, won’t be present.” Make that former player, in an organization now headed by the previously #2 producer, Iran (which just happens is not all that pro-US). The biggest threat, however, is that in direct retaliation against the IEA’s cartel-like decision, which comes at the expense of the remaining OPEC countries, is that as Zero Hedge suspected, the next step will be a more than proportionate cut in crude production by OPEC: “Some analysts speculated that OPEC could respond to the IEA release by cutting output to offset the increased supply.” What happens next is complete Nash equilibrium collapse, with a high possibility of a 1973-type OPEC oil embargo announcement in the immediate future.

“Going ahead with an increase would cut into revenue, said Christof Ruehl, chief economist of BP PLC. But cutting production to offset the release, he said, “would be seen as hostile by IEA members” and “could lead to a war of attrition, at least as expensive,” in which OPEC cuts production and the IEA keeps releasing stocks to make up for the shortage.” The winner of all this, is of course, China, which will gladly benefit from ongoing blue light specials courtesy of the US Strtategic Petroleum Reserve to build up its own reserve holdings, as the rest of the world squabbles over a US-dominated status quo whose time has now officially passed. And just as the rare earth metal price spike in recent weeks demonstrates what happens when China is the marginal anything in any supply chain, one can be certain that the price of Crude will be far, far higher several years from now.

And speaking of Iran, its oil ministry SHANA wasted no time in firing the retaliating round against the IEA’s decision, accusing the US of acting unilaterally and purely for the benefit of Obama’s reelection campaign, warning that the drop in oil prices won’t persist:

Iranian governor for OPEC Mohammad Ali Khtatibi says International Energy Agency (IEA) decision to draw oil from its emergency reserves implies intervention in the ordinary function of the oil market.

Speaking to Shana, Mr. Khatibi said that the trend of falling oil prices would not be sustainable.

‘Following the failure to bring down the prices at 159th ministerial meeting of OPEC in June 8, the United States of America and Europe are using all the means to push oil prices lower, Iranian governor for OPEC said.

Khatibi noted that IEA’s initiative to release oil from strategic petroleum reserves would followed by artificial falling of oil prices but those countries believing in open markets showed they are not genuine in their believes.

According to Khatibi recent days’ developments in oil market is not the result of issues relating to supply and demand or market needs but political pressures by the United States drives the initiative. 

The United States government plans to influence the results of the upcoming presidential elections of the country by putting pressure on oil prices’ top Iranian oil official said.

Khatibi pointed out that developed countries initiative to draw oil from strategic petroleum reserves is risky because they cannot continue the move in the long term.

He added: these reserves are being held for emergency situations so the consuming countries of the International Energy Agency will have no other choice except to replenish the reserves for further use. 

Indeed, if Obama’s reelection campaign is such an emergency that it requires tapping the SPR, what will happen when there is a real emergency: such as a repeat of the 1973 OPEC embargo, which set the stage for Volcker’s last minute and very painful intervention to prevent the US economy from tailspinning into an inflationary supernova?

And just to make sure things get even more polarized, Dow Jones reports that the “International Energy Agency consulted Saudi Arabia, China and India before it authorized the release of some of its emergency reserves, the agency’s executive director said Sunday.”

“They understand, and they appreciate the action,” Nobuo Tanaka said on the sidelines of the second Global Think Tank Summit in Beijing.

The release of some of IEA’s strategic stockpiles is meant only to fill the gap in supply until higher crude volumes from Saudi Arabia reach the global market, he added.

Oddly enough, the leadership at the IEA is just as clueless as that of the US:

Separately, Tanaka said he asked China once again to join the IEA on Saturday. Although there hasn’t been any official response, Tanaka said he was encouraged by China’s recent statement publicly welcoming the IEA’s strategic stockpiles release.

Of course they welcome it you idiot, because they will be buying everything your member countries have to sell, and thanks to your stupidity, at a welcome discount. And why the hell would China want to join the IEA when it gets all the benefits of participation, without any of the obligations of being a member (i.e., adhering to your retarded politically-motivated agenda).

Good luck buying it back at the same price when OPEC fires its own warning shot and announces it is reducing crude output for all remaining OPEC countries (ex. Saudi) by 10-15%. And yes, Goldman will promptly move it Brent sell recommendation to a buy, within hours of said announcement.

Strategic Petroleum Reserve

Jim Brown
Back before the OPEC meeting the Obama administration held talks with Saudi Arabia on swapping oil in the SPR for new oil Saudi would produce. This revelation shocked many traders and suggests the administration is unaware of the strategic reasons behind the SPR.The Strategic Petroleum Reserve (SPR) holds 727 million barrels of oil that is “reserved” for times when oil is not available on the open market due to war, hurricane, embargo, etc. The oil in the SPR is not there to be used to manipulate prices. It is a “strategic” reserve. Most presidents have forgotten what strategic means and have instead treated it like a “Political Petroleum Reserve.”

The SPR was created by President Ford in 1975 as an answer to the 1973-1974 oil embargo when Arab nations cut off supplies of oil to the USA. Although commissioned in 1975 with construction beginning in 1976 and the first shipment into the reserve in July 1977 it was not until Christmas Day 2009 that the SPR was finally filled to capacity. It took 32 YEARS to fill the reserve. Oil was purchased outright and also procured as a Royalty-in-Kind (RIK) from U.S. producers in lieu of royalty payments to the Federal government.

In 2005 Congress decided the events in the Middle East were suggesting future problems for imported oil and they authorized an expansion of the SPR to one billion barrels. However, despite a comprehensive plan to locate and prepare additional storage facilities there has been no actual construction to fulfill the authorization. The current administration is “reviewing” the plans and the reason behind the SPR.

It has been tapped in the past when national disasters like Katrina knocked out the Louisiana Offshore Oil Platform (LOOP) where oil imported from overseas is offloaded into pipelines for transport to refineries. I view that as a valid use since the amount of oil released is trivial and will be replaced as soon as practical after the disaster. Actually the refineries receiving the oil from the SPR have to replace it with oil within so many weeks after the disaster is over. There have been two major drawdowns from the SPR. Desert Storm saw a distribution of 17.3 million barrels when prices when world supplies dropped after Kuwait was invaded and Iraq production was degraded. The second major drawdown was after Katrina when 25% of our domestic production was halted. The DOE authorized a sale of 30 million barrels but only 11 million were actually purchased by refiners.

The current SPR inventory is 292.5 million barrels of light sweet crude and 434 million of heavy sour crude.

We found out last week that the current administration held talks with Saudi Arabia on taking light sweet crude, the kind in short supply, and shipping it to Europe and replacing it with heavy sour crude from Saudi Arabia.

Europe is facing a very tight situation today with the loss of 1.5 mbpd of light crude production from Libya. Since light crude supplies in general are what controls oil prices the shortage of sufficient light oil has pushed Brent prices well over $100. There is no shortage of heavy sour crude but there are fewer refineries that can process that crude and that makes heavy sour crude a lot cheaper on the world markets.

In the U.S. we have a mix of refineries with some capable of processing the cheaper oil and some only the light oil.

If we were to take out 1.5 mbpd of light sweet crude from the SPR and send it to Europe to replace the Libyan crude when would that program end? The IEA does not expect Libyan crude to be back at full production until 2015. Obviously at the rate of 1.5 mbpd (45 mb per month) we could not supply the missing oil for more than a few months.

By replacing that highly desirable light oil with less than desirable heavy oil we would be reducing the value of our strategic reserves. If this program continued for several months our flexibility in handling future real emergencies would be degraded. It took 32 years to fill the reserve and that period covered times of plenty and times of scarcity, economic boom and economic bust.

With the budget under extreme pressure and spending cut comments in every newscast should we really be depleting our strategic reserves so Europe can have cheaper gasoline and Saudi Arabia can sell more low quality oil without going through the OPEC quota program? I think not.

The SPR is a STRATEGIC reserve that lawmakers saw fit to construct and fill at the cost of billions of dollars. Politically several presidents have talked about releasing oil to reduce fuel prices in the USA but so far they have all been dissuaded from weakening the strategic value of the reserve.

Lawmakers should prevent presidents from making these kinds of political moves. When we actually need this oil we need it to be there. If Iran obtains a nuclear weapon there are two targets at the top of their hit list. The first is Israel although they may not follow through with that attack because of the tremendous retaliation Israel could inflict on Iran. The second target is their archenemy Saudi Arabia. If they could knock out Saudi’s major oil terminal they could inflict severe financial damage on Saudi and eliminate Saudi’s financial influence in the region. The loss of Saudi’s 10.0 mbpd of production would immediately send oil prices well over $200 a barrel and Iran’s oil would be worth triple what it is today. Of course they would still have the problem of selling it because global sanctions would be severe.

Al Qaeda has targeted the Saudi oil fields and production facilities for years but have so far been unable to mount an effective attack. If al Qaeda eventually manages to act on their aspirations the same significant drop in the worlds oil supply would appear.

Today’s Arab Spring uprising all over the Middle East and Northern Africa is another warning that oil supplies from that region could dry up in a matter of days given the right sequence of events. This is all the more reason we should not dwindle away our strategic resources.

Lastly, China is eventually going to be a serious thorn in our oil supply. Chinese generals have said China will be at war with the U.S. by the end of the decade over natural resources. China could cause the U.S. great harm by interdicting oil supplies from the Middle East. If they believe we don’t have the backbone to stand up to them in an armed conflict then they could take action to acquire more supplies and it would be our loss.

As we continue approaching the peak in oil production we are going to see news events increasing in frequency that will make our strategic reserves more strategic. The U.S. military already believes there will be shortages in 2012 and that shortage could grow to 10 million barrels per day by 2015.

U.S. Joint Operating Environment, Page 29

If our own military believes there will be shortages by 2012 and severe shortages by 2015 why would we want to send critical supplies of light crude to Europe in exchange for sour crude from Saudi Arabia?

The administration claims they have a plan “teed up” to use the SPR in the case of market shifts. Let’s hope that plan fails to leave the tee and calmer and less political heads prevail.

Jim Brown

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ecliptix543

You have got to be fucking shitting me. Chinese generals expect war with us by the end of the decade? IF that is the case, any expectation of survival in this country with these completely ruinous jackasses in charge has become an untenable proposition. Within days of any sort of embargo, the United States will cease to exist. Apparently, this is want this administration wants and is furiously working towards.

I am actually having trouble breathing right now I’m so pissed.

Buckhed
Buckhed

I have a feeling that the first shot over the Chinese bow was in Libya. The Chinese had some contracts for Libyan oil if my memory is correct. I wonder how they feel about not getting those contracts filled right now ?

ecliptix543

Maybe I won’t have to wait til next year from the revolution after all.

scott
scott

Didn’t Bill Clinton also pilfer oil from the SPR to try and reduce heating oil prices in New England? I’m really surprised we still have any oil in the SPR given our ‘leaders’ penchant for stealing and looting everything in sight ( or, in the case of the SPR out of sight in salt caverns).

Obama will probably become ever more dangerous as the election nears. I come to that reluctant conclusion not only because he doesn’t seem to have any real plan or even direction he wants to take the country to but because, as the first ‘black’ to ever hold a global leadership position, being
repudiated after one term and seen as an utter failure would be a greater symbolic defeat than his
election was a victory.

MuckAbout

There is a plan behind all this idiocy – they’re driving us into some situation of their making and it is not clear what it is yet.

Turning loose 30 million gallons of oil from the strategic reserve is a political move to accomplish something but I’m damned if I can figure out what.

War by the end of the decade?? Bet on it.

MA

Persnickety
Persnickety

MA is quite right, the use of SPR oil is so mind-blowingly stupid and badly timed that it seems most logical that it’s part of manufacturing a crisis – whether that’s a domestic fuel shortage or a war with China, I don’t know. Probably both, really. We’re already in police state lite(tm) and it seems likely that they are doing everything possible to steer us toward police state heavy(tm).

I highly, highly recommend the film V for Vendetta for parallels. On a slightly lighter note I highly recommend War, Inc. as a painfully true parody of our last 10 years in Kraplakistan err I mean Iraq and Afghanistan.

ecliptix543

So we wanna start taking bets on when the false flag will kick off?

scott
scott

I wouldn’t read too much into this. Bill Clinton was famous for taking a small event or program and hyping it as if it was the next big thing. 60 million barrels is not a major deal though tapping the SPR is a political watershed. It is odd that this administration and its apologists will argue that this was a brave response to rising oil prices or a bold stroke blah blah blah but we gotta remember this will be coming from the same folks who continuously tell us that there is no point in drilling anywhere because, pick your location, the oil recouped would only amount to a 10, 20 30 day supply for the US. Never mind that a 10, 20 or 30 days worth of oil dwarfs the puny 30 million barrels Obama is set
to release. It would also be NEW oil, that is additive to our national economy not pawning the family silver.

Buckhed
Buckhed

Maybe someone went short on oil and needed some help in order to make a buck.

Hello Mr President…This is Bill Bigbucks,I’m the guy that donated 500K to the Demorat party,how about selling some of that old oil that you’ve got sitting there in those tanks around the country. It’s probably going to spoil if you don’t sell it soon….you didn’t know oil can go bad. Yep it does.

A few days later…..”Thanks Mr President…the checks in the mail “.

StuckInNJ
StuckInNJ

Stucky’s Obama Math Bullshit Checker (approximations)

The USA uses 20 million barrels of oil per day
————- http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption

60 / 20 = 3

Obama says 3 days of strategic oil reserves will save Americans lotsa moola at da gas pumps.

Therefore, Obama cements his status as DUMBEST MUTHAFUCKER ever.

Novista

Buckhed

Would this graph be a Clue?

comment image

StuckInNJ
StuckInNJ

From minyanville

Obviously, the release of an extra million barrels a week when inventory is higher than normal reeks of the obvious — politics. The only real question is what is the political agenda? The choices are many.

Let’s go through the obvious choices which the press are beating into the ground since the announcement made yesterday morning.

•President Obama did it to increase his election chances next year. Lower pump prices = better polls.

Seems a bit early for that. Next June, that might be more logical.

•He did it to hurt oil speculators, much like a currency intervention.

Possible, but oil peaked the first week of May, and it’s been in steady downtrend since.

•Obama and the Europeans did it to stick it to the OPEC pricing hawks, Iran, and Venezuela.

Couldn’t happen to a nicer couple of guys, but this seems like pleasant collateral damage, not the primary reason.

•He did it because the Europeans wanted it and like the Libya bombing, he eventually folded under European pressure.

Definitely a Rush Limbaugh-type analysis, but the Europeans did want it badly.

•He did it because the Fed is out of bullets and direct commodity manipulation is the only remaining bullet.

Hmmm…

•Finally, we have the actual reason that the IEA stated. The loss of Libyan sweet (low sulfur) crude production cannot be made up through increased sour (high sulfur) production elsewhere because European refineries that lost Libyan sweet crude cannot handle sour crude.

This seems to be true. It also explains why the British and French forces have stepped up the air attacks on Libya to try to force Qaddafi out. They don’t care who is running the show as long as sweet crude is pumped. There is nothing like altruism and protecting civilians when oil is concerned.

I think the most logical answer is the final statement, though the president had no problem with the benefits from the first five possibilities. All of this understates the real issue. The loss of 1.6 million barrels a day of sweet crude called the Saudi bluff that they could increase production enough to negate that loss. They clearly haven’t/couldn’t and Europe blinked.

In my opinion, this is the first test that Peak Oil (the world will be unable to produce enough oil to meet demand) is right around the corner.

howard in nyc

but…but…

that would mean the libyan action is motivated by oil, not by humanitarian life saving.

impossible. or as yves says, “quelle suprise!”

Thinker

Anyone else get the sense that there’s a real-life chess game being played by the world’s leaders? That this move is like sending your Rook out front, temporarily leaving the Queen unguarded, although she can more than handle herself, for the time being? It’s all a psychological move to get your opponent to make the next step, so you can test his/her mettle.

Knowing what we know about the behavior of these esteemed (cough) world leaders — thanks, Wikileaks! — it appears this may be exactly what’s going on.

To find the silver lining here, I agree with whomever said it’s a good time to start preparing for what post-peak oil is going to mean to this country. Homemade ethanol, anyone?

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