As US Prepares To Tap Strategic Oil Reserve, Crude Prices To Surge On Asian Disaster Preparation

Tyler Durden's picture

With ICE and CME margin hikes - that last bastion of supply/demand imbalance suppression - no longer having an impact on crude price, it was only a matter of time before the last theatrical measure in the price arsenal was used.  Per Dow Jones: "White House Chief of Staff Bill Daley said on Sunday the Obama administration is considering tapping into the U.S. strategic oil reserve as one way to help ease soaring oil prices." Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. ... All matters have to be on the table." There has been support among Senate Democrats for tapping the reserves. Senator Jay Rockefeller on Thursday became the third Democrat to ask President Barack Obama to tap America's emergency oil supply to cool prices that have risen past $100 a barrel on the strife in Libya." What our esteemed politicians fail to realize that tapping the SPR is analogous to Lehman filing an 8K declaring to the world it is now tapping directly into the Fed's discount window for its liquidity - that didn't end too well. The problem with the SPR is that as a non-marginal replacement of supply it is largely a puppet: with a capacity 726.7 million barrels, the SPR holds a 34 day reserve at the US daily consumption of 21 million barrels. The picture is slightly better when considering that the US only imports 12 MMbd, meaning there is a 58 day supply. But the biggest issue that nobody is considering, is that the maximum total withdrawal capacity is physically limited to just 4.4 million barrels per day. In other words, should the MENA escalation flare up, there is no way to physically replace all the lost output. Yet what is most troubling is that even as the US is about to start using up its reserves, Asia is actively shoring up its oil, meaning that as our own oil buffer gets ever smaller, Asia could easily dictate economic terms over the OPEC cartel as soon as a few months from now if the Bernanke liberation wave does not end any time soon.

More on the last ditch attempt at preventing all out desperation at the oil pump as gas now moves solidly into $4 territory across the country.

In a letter to Obama, Rockefeller said a "limited draw-down" from the nation's 727-million-barrel Strategic Petroleum Reserve "can protect our national security by preventing or reducing the adverse impact of an oil shortage."

On Wednesday, U.S. Energy Secretary Steven Chu ruled out releasing oil from the reserve, saying ramped up oil production in Saudi Arabia should lower the crude price.

"That's going to mitigate the price increase," he told reporters on Wednesday. "We're hoping market forces will take care of this."

Just as market forces took care of Lehman once it became known that the bank was a zombie, solely reliant on the Fed for liquidity. This time the liquidity is of a different sort, but the reaction will be the same: how long before our idiot politicians finally understand how the market operates?

In the meantime, CHina's response is by far the more logical one (from Dow Jones):

China will start work on building strategic oil reserve tanks at the north-eastern port of Tianjin by May, China Daily newspaper reported Saturday.

Work will be completed before the end of China's 2011-2015 five-year economic plan, and filling this reserve will start when the oil price is "appropriate", Tianjin city official He Shushan was quoted as saying.

China's efforts to build up oil stocks are closely watched by energy market analysts, as its demand for oil is a key driver of global prices and huge amounts of crude are needed for the project. China imports more than half the oil it uses.

The reserve site in Tianjin is among eight stockpiling bases being prepared in the second phase of China's strategic petroleum reserve project.

These eight sites will have 26.8 million cubic meters of capacity, able to store the equivalent of 169 million barrels of crude oil.

The western countries' energy watchdog, the International Energy Agency, has repeatedly criticized Beijing for not publishing national oil stock volume figures, which are needed to calculate global oil demand.

Sites for other second-phase bases include Zhanjiang and Huizhou in Guangdong province, Lanzhou in Gansu province, and Jintan and Jinzhou in Liaoning province.

China's petroleum reserve capacity was enough for 39 days of consumption by the end of 2010, with this comprising the SPR oil and a further 168 million barrels of commercial reserve capacity, state energy giant China National Petroleum Corp. said in January.

It is not only China: all of Asia is taking the prudent step of preparing for a very long storm. From the FT:

As oil prices spiral higher amid turmoil in Libya, developing countries across Asia are taking evasive action, shoring up their strategic petroleum reserves against the risk of a prolonged supply shock. Their actions could propel crude even higher.

The Philippines, citing events in the Middle East, announced on Wednesday that it would require oil companies in the country to maintain 15 days of reserves, and refineries to keep enough oil to last for 30 days.

Manila’s move is the most visible sign yet of how Asian countries are seeking to improve their oil security amid what is shaping up to be the worst supply crisis since the invasion of Iraq in 2003. Other big regional oil importers are likely to follow suit.

China is the world’s second-largest oil importer after the US. India is the world’s fifth-largest, ahead of countries such as South Korea, France and the UK. But the pair lack a strategic petroleum reserve that can be tapped during a supply crisis similar in size and scope to the ones held by western countries.

Unlike industrialised countries, which built up their stockpiles three decades ago in the wake of the 1973 oil crisis, China only recently began its strategic reserve programme, starting to fill reserves in 2006 and completing a 102m barrel build-out in “Phase One” two years later.

The second phase of the programme will build a further 168m barrels of reserves by the beginning of next year.

When China finishes filling its reserve, which it is expected to do by 2020, it will hold about 500m barrels, equal to roughly three months of imports and the second-largest stockpile in the world.

China’s strategic stockpiling “is likely to be a feature of the global oil market not only this year but this decade”, says Soozhana Choi, head of Asia commodities research at Deutsche Bank in Singapore.

Although purchases are kept secret, analysts and oil traders believe that events in Libya and the prospect of further supply disruptions in the Middle East could boost strategic buying of crude.

“With the expectation that prices are going to rise, they will accelerate the pace of tank-filling,” says K.F. Yan, director at energy consultants CERA in Beijing.

Here is a brief lesson in FIFO/LIFO: as the US is about to use up a whole lot of low cost-basis oil, the expectation of surging Asian demand for crude will send prices skyrockting even more, forcing the US to use up increasingly more cost prohibitive oil. Of course, all of the oil in the SPR will have to be replaced, as the US then suddenly become a marginal buyer of oil at the next price of $100+/barrel, which will also be factored into expectations, which in turn will send the oil price even higher, and by the time this horrendous attempt at damage control is over, gas at the pump will be well over $5/gallon.

But somehow none of this made Meet the Press...


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Hdawg's picture

"Senator Jay Rockefeller on Thursday became the third Democrat to ask President Barack Obama to tap America's emergency oil supply"

Given this Morano's famliy it's no surprise is it.


Beware The Days Of Purim 19th-20th March 2011

Michael's picture

Senator Jay Rockefeller is trying to hold his elitist regime together for his families interests.

Here is how the people of the world feel about the Rockefeller Family.

David Rockefeller confronted at Chilean Airport during vacations (ENG/SPA)

theXman's picture

I can't believe how stupid there people are. This is absolutely no the time to use SPR:

1) Libya's lost oil output is less than 1% of global production. What are you going to do when Saudi is knocked out ?


2) US economy is less sensitive to oil price than China, why should US sacrifize SPR to lower oil price for China?


3) Last but not least, $100 will be the floor price for oil in a few years. In other words, it is very cheap! If we release SPR now, we will need to refill the tanks at higher price in the future. Sell low buy high? Just brilliant.



EscapeKey's picture

4) There's no immediate election of significance.

spanish inquisition's picture

It may be of relevance if you ( a rockawho?) are aware that there will soon be a significant reduction in oil flowing from Libya. Something has to be done to allow troops in legally (more than just 50K mercenaries).

There are obligations to the corporations that hold the rights to the oil, to the corporations that supply the military and to your partners security interests in maintaining a controlled unrest in the area so they may pursue their ambitions.

The worst thing that can happen is peace in the middle east.

Our two weapons are fear and surprise...and ruthless efficiency...

Blano's picture

$4 gas is a bummer, not an emergency.

wintermute's picture

Right on theXman,

Game theory would strongly favour leaving the SPR untouched until/if Saudi has production problems. Imagine the political disaster if they ran down the SPR for Libya to find nothing left if Saudi exports halted later.

Points 2 and 3 spot on analysis too!

Flakmeister's picture

  I'll quibble with point 2.... Discretionary use of oil is the US is much higher, problem is that a lot of the economy is tied to that discretionary use. I don't think it is as simple as it appears.

I wholeheartedly agree that the SPR should be off-limits except for real emergencies, e.g. Katrina, large scale oil disruption or embargo. 

Hdawg's picture

Well said Michael,

10 points for telling us race of people ARE the elite regime?


Beware The Days Of Purim 19th-20th March 2011


Nice one theXman ... breaking up our valid thread.



Michael's picture

Nepotism is a disease. That's all I'm going to say about that.

Woppopotamus's picture

You have got to stop hijacking every single thread. Its making the comments a huge pain in the ass to read.

snowball777's picture


Flakmeister's picture

Completely irrelevant shit as well.. I mean, like not everything is a Jewish Conspiracy... Next thing will he'll be posting "Protocols of the Zionist Elders"

Michael, Take your hate agenda elsewhere.

Spalding_Smailes's picture

Not big on the Jew bashing thing as well. You can't blame a group of people for being smart at business decisions.

I wish my great grandpa started an import • export business in the 20's or started a business that was still booming today. For the most part I see a hard working people who enter business with an eye toward the future. They also teach their kids about life at a young age not leaving this important task to the t.v. or public school system.

DaveyJones's picture

I don't know Flak, we really could use a Jewish conspiracy these days I mean how long did they make that temple oil last?

Orly's picture

And the endless fish from a basket...don't forget about that one, too.

Spalding_Smailes's picture

Hey, that was Jesus = Special. He was not Jewish per se, born of the holy spirit. Not from under the covers bang,bang. ;-) Just say'n ...

Orly's picture

Separating fact from fiction or myth...

and not to be picky but Yeshua bin-Josef was indeed a Jewish rabbi who studied under the tutelage of John the Baptist and in the school of the Essenes.

He rejected the Talmud, the oral Torah (Mishnah...), which basically said that Jews could lie at will to people who weren't Jews, in much the same way that Muslims can treat "infidels" any way they want because they weren't really people.

Jesus rejected this idea out-of-hand, so I suppose one may say that he wasn't a "real" Jew.  When he wanted to take his ideas mainstream, with the secret sponsorship of Joseph of Arimathea, a member of the Sanhedrin, he and his pals went to the Temple with weapons, expecting to prompt a popular uprising that did not materialise.  He got busted and convicted.

A special place was erected for this rebel of the (Jewish...) State and he was nailed (only done for very special convicts...) to a cross and erected directly outside the gates of Jerusalem, so that all who entered or left the City could see that any dissent from the Oral Law would not be tolerated.

Some also say that Joseph paid Pilate to release Jesus but Pilate couldn't just let that slide, so a surrogate was put in his place- the "betrayer" Judas Iscariot.  Jesus may have been married to Joseph's daughter, Mary.


Now, this is not to take away anything from their achievements.  In fact, quite the contrary.  Yehsua was a rabbi, so he was well aware of the expectations of the Messiah to the people and Joseph had enough money to make it happen.  Water into wine, the endless fishes, entering the South gate on the back of an ass...

It was manipulation of public perceptions and beliefs, pure and simple.  But think of the huevos it took for these men to try to pull this off!  Against the most powerful empire the world had ever known; against the power of the rulers of the Temple of Jerusalem.  Twenty guys or so go in with swords ablazin'!  Wow.  I'd have loved to have been there that day, I tell you.

That having been said, it is clear that the teachings of Christianity are by far the best thing that have ever happened to this planet and I, being a devout atheist, thank God for that.

Good will always triumph.



If my opinion offends, I apologise but the facts add up and can be found in the writings of many modern scholars, most notably Joel Carmichael, particularly the book The Death of Jesus.  Fascinating and very, very enlightening.

Orly's picture

Awesome.  Thanks for the link.  I loves me some religious history.

Sensationalistic?  Well, maybe, but the read of Carmichael's book was a rather toguh slog in parts, I will admit.  Dry as dirt.

I appreciate it.


DaveyJones's picture

Omega 3 oil, oil again

Michael's picture

It only took 12 words from my keyboard to get this fabulous discussion going without using any ethnic epithets.

I am proud of myself and all who added to this discussion.

Carry on.

Freddie's picture

Michael - you do know that the Chase in JP Morgan Chase is the Rockefellers.   I think Chase controls Morgan.  Morgan was always a puppet for another family in Europe anyway.

Twindrives's picture

What dumbass Rockefeller hasn't figured out is that  Obama will use the strategic reserve to fuel Homeland Securities'  plan to crush the citizen's revolution that is coming to the United States of America. 


Jets, helicopter gunships, armored vehicles, police forces that Obama will use to crush patriot uprisings. 

Citxmech's picture

Calling any future uprising the result of "patriotism" misppropriates the word IMHO.  If the population was going to stand up for values articulated in the Constitution, it should have happened after the implimentation of the "Patriot Act," and the sanctioning of warrantless wiretapping, and other Constitutional abuses.

The coming "uprisings" will just be folks who freaking out because they have lost the benefits of our unsustainable lifestyle and now have to confront the reality that most of the world already lives in:  Abject poverty.

Welcome to the backside of the curve...

Michael's picture

We didn't have enough Internet power back then. We do now.

Abitdodgie's picture

You forget as 98% of people in America are 14th Amendment citizens, which means they are on board with the Government in the form of contract, so the government can do what the fuck it wants to them.

Oh regional Indian's picture

Twin, the weapons you mention are very 20th century...

Try this:


Non-Lethal Weapons


Non-Lethal munitions applications will be used by military personnel to apply the minimum force necessary while performing missions of crowd control and area security at key facilities around the globe. These devices will aid military forces/commanders in situations of hostages rescue, capture of criminals, terrorists, or control of other adversarial persons.

Malodorants and irritants are two types of nonlethal weapons designed to temporarily mark, incapacitate, or drive away persons from an area. Environmental assessments have been performed on the malodorants Bathroom Malodor and Who-Me?, and the irritants Oleoresin Capsicum (OC), CS-Mace, and CN-Mace.

A running gear entanglement system (RGES) is proposed to protect Navy ships in port, and other waterside assets such as museums and marinas. The entanglement device will foul the propeller of unauthorized vessels attempting to approach restricted areas.

A pulsed-energy projectile (PEP) is under development that uses a chemical laser technology to produce a large flash, bang, and shock wave to temporarily disorient and incapacitate individuals in a crowd.

The advanced tactical laser (ATL) concept involves an infrared laser carried in an aircraft for air-to-ground strike missions, providing pinpoint accuracy and minimum damage.

Anti-traction material (ATM) is a very slippery, gel-like substance sprayed on ground surfaces to prevent access to areas by people and vehicles.

Nonlethal airburst munitions are 20mm weapons designed to emplace liquids, aerosols, powders and other objects at a precise location in space.

Thermobaric technology is a nonlethal weapon, in development, that causes extended flash, sound, temperature, and pressure conditions to disorient and/or temporarily incapacitate individuals.

Minor injuries can and will occur (bruises, stings, etc.) to individuals who are struck by payloads of Non-Lethal munitions. In fact, even if properly employed severe injury or death are still a possibility. Non-Lethal weapons shall not be required to have a zero probability of producing fatalities or permanent injuries. However while complete avoidance of these effects is not guaranteed or expected, when properly employed, Non-Lethal weapons should significantly reduce them as compared with physically destroying the same target.

For the guns and ammo folk on this thread, I'll say you do not stand a chance.

You have to get smarter, not stronger. Legends like David and Goliath have survived the test of time for a reason.

Rock paper scissors is also so old school.

Think: Air, Fire, Water...



Citxmech's picture

But remember, North Vietnam "didn't stand a chance" either - I've heard it said that they never won a battle - of course they did win the war.


Oh regional Indian's picture

If they had then what they have now....

Microwave crowd control? Subliminal messaging on a massive scale? Micro-nukes...

Also Nam was a war the US was never meant to win. Terrible for the forces.

It was all about DRUGS. As was the Korean War. DRUGS.

And OIL is just another DRUG.

No wars in the last century were fair. They all had pre-meditated outcomes.

As soon as sufficient damage had beed done and loot had been looted, distributed.


Orly's picture

Absolutely corrrect.

The only way we're going to win- if it comes down to it (but I don't think it will...)- is to have a whole load of geniuses on our side who can construct a re-focusing microwave cannon out of paper towel rolls, an old tube of toothpaste and a metal rubbish bin.

In short, we need McGyver.

We have to work with our brains and not set ourselves up to be cannon fodder.

Oh regional Indian's picture

Zigackly Orly. Smart, not hard. It works every time.


InconvenientCounterParty's picture

Fighting a giant with a million slings and arrows might work or it might not. Arguably the most in demand commodity on the face of the planet is productive labor. The fractional reserve parasites need it to survive. You want to take them out? Organize a general strike.

ElvisDog's picture

Yeah, I say BS to that too. It's a matter of numbers. 300 million civilians versus maybe 10 million police, national guard, etc. The way revolutions work is that initial government response incites more people to join the revolution. There is a tipping point where the numbers just overwhelm the government forces. Also, there is a point where the government forces start to defect to the other side.

dehdhed's picture

yup, if they start using these tactics, then even this pacifist will begin throwing rocks.

Oh regional Indian's picture

Elvis, this time it si different.

What if Blackwater (Xe) brought in 50,000 battle-hardened mercs from the world over, on contract...

Remember the Iraqi Surrender? Really worth digging deep into, those were no cowards but battle hardened veterans of th eIran Iraq conflict.

You/we have no idea what we are up against then the pin does drop.

Patriotism/jingoism is what is counted on to in-flame crowds, who then jump off the closest rage.

Command and control, overwhelming firepower, mind-blowing, tested crowd control technology, infiltration........

It's different this time. 

I'm not advocating being a coward and hiding, all I'm saying is think smarter.

To Orly's point above, bring on the McGyvers, not the range trained shooters.



dark pools of soros's picture

those are defensive...  most bunker folks aren't leaving their bunker to join riots..  so the logistics change a bit...   if you are talking thousands of flying drone attacks, then that's the endgame

Abitdodgie's picture

Drones are only as good as the operator , take out the operator then there is no drone

Things that go bump's picture

ORI, that puts me in mind of the charge of the Light Bragade or the Polish cavalry charging a Panzer division - gallent but doomed and ultimately stupid.  We need to investigate the virtures of a disorganized resistance.  Gorilla warfare is much more productive.



Oh regional Indian's picture

Spot on ThingsTGB. Briliantly dis-organized.

David knew he was a dead shot and he knew goliath's weakness, that was fearless genius.

Very cool article, spot on with why it would not work in the US like it might in a more homogenous country.



Coast Watcher's picture


to start learning about open source insurgency.


Citxmech's picture

"We need to investigate the virtures of a disorganized resistance. Gorilla warfare is much more productive."

I think the big question - is what are resisting against?  The resisters want the system to continue as much as TPTB - to strike out at the power structure, we strike at ourselves.

The reason we're in this mess this deep is because TPTB are trying to keep the old system on life support, when it should be buried because it's starting to stink.

Either way - if people can't afford to get to work or eat - they will be rioting just to survive - not because of any grand political ideals.

Abitdodgie's picture

 Taking out air bases is also very beneficial to knock out air support which will not be doing the rest of the country any good , after all how many fighter jets want to destroy there own base

Hook Line and Sphincter's picture

There are many out there who will not allow their enlisted brothers (blood related) leave their homes in a conscious and/or breathing state when the time comes. Sad, but necessary.

buzzsaw99's picture

Using the SPR to manipulate prices is pathetic. JPM is behind this move somehow I just noes it.

Miles Kendig's picture

Using the SPR to manipulate prices is pathetic

And a lost cause under current circumstances.  A fine tell tale as to not only how clueless policy makers are, but of how scared they are that the blocks of WIC cheese being dropped by helicopter are losing their effectiveness.

Hey Mohamed El-Erian -- You were discussing the astuteness of established governance and its ability to maintain stability by acting proactively & preemptively?!  ROFLMAO

A third group of countries, including in the GCC, will likely avoid regime change. Governments have the willingness and ability to respond proactively and preemptively. They start with greater political and social legitimacy, as well as better means to help citizens deal with economic and social pressures. Indeed, some have already shown considerable skillfulness in understanding the dynamics in play and have reacted accordingly.

buzzsaw99's picture

just -1 mb/d for two years = spr bye bye.