Releasing crude from the SPR is not the answer

The shortest distance between two points is a circle. “Proof”, you say? I’ll give you proof!

The sooner you leave a place, the quicker you are right back where you started. So there’s no point in leaving in the first place. In following this mathematical theme, at times, the smallest statements hide the biggest problems.

Here you go.

In an, “Oh, by the way just thought you’d want to know” statement, the U.S. Department of Energy announced that they would be releasing up to five million barrels of crude from the Strategic Petroleum Reserve (SPR).

The reason given for this move was to “appropriately assess the system’s capabilities in the event of a [supply] disruption.” In my last report I used the term “deflection”, but this is an example of political deception.

The SPR holds a capacity of 720 million barrels of crude, which is stored underground in caverns created in a series of salt domes along the Texas and Louisiana Gulf Coasts. The purpose of the SPR is to act as a reserve should the U.S. be in a situation where crude supply is in jeopardy due economic or physical warfare. As such, the SPR is only to be accessed under these conditions.

The SPR is almost filled to capacity at about 700 million barrels. If we add the conventional crude inventories, the U.S. total comes out to a little over one billion.

As far as I know, the U.S. is not under any supply threat.

In fact, the climate change, fossil-fuel-hating Democrat pundits claim that the U.S. is now Number 1 in crude production, outpacing even their former special friend, Saudi Arabia, and their new, not such a good friend, Russia.

So why “assess” the SPR system? The SPR inventory consists of approximately 60% heavy sour crude similar to the oil sands crude. The majority of the Gulf Coast refineries have spent billions to re-engineer their facilities to process heavy sour crude. The Bakken shale oil crude is light and sweet so refining it is a problem creating a glut, which has nowhere to go because it is illegal to export U.S. domestic crude unless the president approves it.

The United Steelworkers, a key electoral base for the president, is against exporting crude claiming that it will cost refining jobs in the U.S. and create them overseas, raise domestic gas prices, and threaten U.S. energy independence.

In my opinion, these reasons are shaky at best, but then again, I believe President Obama is on shaky ground.

Unless the shale oil has a place to go, production will slow, and jobs will disappear in the fracking fields.

Releasing heavy sour crude from the SPR opens up a home for the light shale oil without exporting any crude. The heavy sour crude from the SPR itself will not be exported – It will instead be refined and then exported under the disguise of diesel and gasoline to South America including not-so-friendly Venezuela.

So, the purpose of the SPR was a good thought that has been conveniently forgotten by a president who has been surrounded by too many decisions and has chosen to circle his political wagons.
~ The Grouch

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Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc.
Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada.

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