Biden administration had decided to release 180 million barrels of oil. While in short-term this may dampen the prices, I think at some point they need to refill the reserves and we know the last time the reserves were released ( of course small quantity) didn’t make any difference. I expect this will also result in the same. The expectation is this will bridge the gap, the time required to ramp-up production. I am not sure the oil producers are willing to increase capacity. If oil producers are not meaningfully increase production, then this sets up for higher oil prices at least until the end of the year and probably a $60 oil base.
If your energy company can be cash flow positive (i.e, address all of their cap-ex, pay dividend, service debt) and still with surplus cash at $50, or $60 oil, then you have companies that you can invest.
There are few oil producers in this category. The market has not repriced many of these names, on the fear, once the war is over, the prices could collapse.
I have call options, most of them are right now on house money. May be, Buffett has more conviction than me, hence building position on OXY.
It appears that the 1 MM barrels a day until October is just another ploy by the democrats to sway voting in November. Their stated objective to refill the coffers at a lower price is irresponsible, and hardly a guarantee. The reserve is for real shortages and not managing market prices.
I would add that from my perspective the US should try and deliver the most oil that it is capable of for the whole world. This would be the most responsibly green thing that we can do for the earth. The world will use the same amount of oil regardless of where it is sourced. Why not source it in the USA where we at least have some regulation to limit the negative impacts on the earth.
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The reserve is for real shortages and not managing market prices.
In electoral politics, it is easy to give free stuff, subsidized prices etc. It is impossible to take it away. While COVID is a horrible pandemic, lots of folks were impacted by government policies of shutdown, etc, and it made sense to give stimulus money, rent control etc.
But we have trained a generation of voters that anytime there is a crisis, real or perceived, government will step in, or has to step in and mitigate it.
Visiting Pearl Harbor, Hawaii today with family.
One of the numerous museum displays had a stack of newspapers from around the U. S. dated December 7, 1941. Recall that would be a day that would later “live in infamy”. The newspapers were all published before news of the historic attack had reached the mainland.
Front page of The San Francisco Examiner has an article written by Karl H. Van Wiegand (Chief foreign correspondent for The Hearst Newspapers) entitled
”Japs must War for Oil or Yield With the U. S…”
We all know “the rest of that story”.
Fortunately, the world doesnt need to worry about secure oil supplies these days. EV technology will protect us. Go ahead and drain the SPR.
(You can’t fix stupid.)
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Rising interest rates and pending recession mean oil prices are likely to fall. That makes OXY most attractive as a dividend play. In a recession oil prices of $12/bbl are possible.
Anything is possible but it is hard to imagine oil prices skyrocketing from here. Oil stock prices usually track oil prices.
Crack spread suggests now is the time to buy refinery stocks.
“I am not sure the oil producers are willing to increase capacity.”
I expect ability to increase production is at least as important, and probably more important, than willingness to increase production.
Even with shorter cycle projects, it isn’t just a matter of spending the CAPEX. Production is limited by the amount of equipment and labor available. For example, lots of reasons that labor has left the field and new blood not entering.
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It appears that the 1 MM barrels a day until October is just another ploy by the democrats to sway voting in November.
Ah, another in the “a recession is just what we need” camp. OK.
Headline, Sept 15,2019: “Trump authorizes release from strategic oil reserve” “ Trump said oil would be released if needed to keep the market well supplied.”
https://www.cnbc.com/2019/09/15/trump-says-he-has-authorized…
I must go back and see if Republicans were complaining about its use to reassure the market at that time. Wait a sec…
…
…
Hmm. No, they weren’t. How surprising!
The SOR is a tool in the toolbox, and using it on occasion doesn’t seem to me to be a sin, particularly when there is an external market shock to deal with, considering that the world, and our society in particular, is extra sensitive to this particular commodity. I don’t recall it being used often, or in situations where it is inappropriate, so color me “not fazed”, and happy that some people are proactive about such things.’
The market is manic. Sometimes, just sometimes it needs a little hand holding.
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I must go back and see if Republicans were complaining
It is a silly notion that anyone who complains against the administration has to be other party operative. This goes for both Republicans and Democrats.
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Listened to an interesting conversation on NPR posted three days ago about the effects of SPR.
Three take always for me:
- Release psychologically calms mkts and tells public Leaders are taking action
- caps gas at the pump price upside; could lessen price 15 cents/gallon.
- Release will have no long term effect until more supply comes to mkt (domestic or Intl).
https://www.npr.org/2022/04/03/1090498777/how-releasing-fede…
GLTA
paul