Margin Hiker-In-Chief Awakes: White House "Dusting Off" Plans For Strategic Petroleum Reserve Release

Tyler Durden's picture

It must be election season because moment ago Reuters just reported that the White House is "dusting off old plans on a potential SPR release as prices rise" according to a source with knowledge of the situation. This too, just like the earlier Corzine news, should not be a surprise. Obama made it expressly clear that with the election fast approaching, he would either force the CME to hike margins, which is also coming, or would proceed with the far dumber step of an SPR release, just so China can full up its own strategic release faster and at a lower cost. The spun version, of course, has to do with Iran, and the fear of "undermining" Iran sanction success. The same sanctions which the US granted key Iran client China a compliance waiver...

From Reuters:

The White House is "dusting off old plans" for a potential release of oil reserves to dampen rising gasoline prices and prevent high energy costs from undermining the success of Iran sanctions, a source with knowledge of the situation said on Thursday.

 

U.S. officials will monitor market conditions over the coming weeks, watching whether gasoline prices fall after the Sept. 3 Labor Day holiday, as they historically do, the source said.

 

It was too early to say how big a drawdown would be from the U.S. Strategic Petroleum Reserve and, potentially, other international reserves if a decision to proceed was taken, the source said.

 

Oil prices have surged in recent weeks, with Brent crude prices closing in on $120 a barrel, up sharply from around $90 a barrel in July. The United States and other Group of Eight countries studied a potential oil release in the spring but shelved the plans when prices dropped.

 

With prices high again, U.S. officials were now collecting information from the market about potential needs and studying futures, production numbers and data on Iranian oil exports.

 

"The driving force in this is both impact on the economy and impact on the Iran sanctions policy," the source said, noting that Washington did not want rising oil prices to create a windfall for Iran while oil embargo and international sanctions were having an effective impact.

 

The United States has yet not held talks with international partners about a coordinated move. The source noted that Britain, France, Germany and other partner nations in the Paris-based International Energy Agency were receptive to a potential release a few months ago when conditions were similar.

 

Those countries were concerned about the impact of high oil prices on the global economy and Iran then, and those concerns "remain equally relevant today."

Oil for now is not buying it for the simple reason that with cross-asset correlations at one, a Strategic Petroluem Reserve release would also means an interim S&P 500 top.

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Hondo's picture

Truly laughable.....the WH should be held in contempt  

notbot's picture

This guy has no conscience.  I've never seen such blatant politically opportunistic moves, not even disguised in any way.  It's like he's openly mocking the media..."no matter what I do, you won't run a negative story on me"  Just wow.

notbot's picture

Goes without saying Spastica.  Every other MSM except Fox.  ABC, NBC, CBS, NYT, WaPo, CNN, LA Times, etc,...you know, all the ones that claim no bias.  Fox/MSNBC are at least open about their bias.

malikai's picture

Wait til you see the next guy in "charge"..

lolmao500's picture

In 2017?? The US won't exist anymore...

XitSam's picture

I hold the White House in contempt every waking hour.

Nobody For President's picture

And Congress. Don't forget Congress!

EINSILVERGUY's picture

They are, just not by the Courts

HungrySeagull's picture

Save that damn SOR.

I'll rather eat the 10 dollar gas knowing the Military has something to run on while in combat.

lolmao500's picture

Even if they wage war on the American people?

Squid Vicious's picture

because it worked so well last time, for about 48 hours?

CrashisOptimistic's picture

This is the danger of seeing an event and thinking it is consequence.

Oil was up sharply last year, he did an SPR release, economic activity was smashed as a result of the very high oil price, oil consumption was similarly smashed and the price fell.

Of course the Administration had to interpret the price fall as a result of their puny SPR release.

Brent is the price of oil.  It's getting scarcer every day.  Iran is pumping about 800K bpd less than pre sanctions.  They are still doing 2.6 million bpd and at Brent prices, that's a pretty penny.

But none of it matters.  He has to be seen doing something as the election approaches.

The trend is your friend's picture

Why is oil still up?   no one believes his bullshit

lolmao500's picture

That and Israel's warmongering.

If only supply-demand were at work here, oil would be at 50$ a barel or less.

Flakmeister's picture

My fuck that was funny....

Maybe you should take your schtick to the road...

Greenhead's picture

They already are contemptable

radicall's picture

YEah.. better than QE. Let's Print some oil. Does this mean Israel is going to attack Iran in the next 48 hours?

Winston Churchill's picture

My thought also.

Will do nothing for price unless theres a severe supply disruption.

In that case,it will keep it below $200 per barrel.

salvadordaly's picture

Wouldn't a smart move be to reserve the reserves in case of war between Isreal and Iran?

ekm's picture

It was about time.

The only thing that matters for the economy is the crude oil price. Nothing else.

Crude oil higher, economy shit.

Crude oil lower, economy has a chance.

The correct price would be brent at $60 and WTI at $50. That would really do something for the simple Joe.

The problem is that the intermediaries are storing the crude to keep the price high, same as for stocks.

Flakmeister's picture

C'mon....

Do you really think those prices will be seen short of Lehman/AIG redux???

Marginal cost of a new Bakken barrel is about 70-80 per barrel....

ekm's picture

I disagree on the marginal cost. If oil prices go down and there is deflation, their input costs would go down also.

I do not believe that the cost is $70. I think it's more like $30-40.

Squid Vicious's picture

must be those evil speculators again... damn they're pesky sons-a-bitches, huh?

ekm's picture

Speculators are good people. They do NOT have storage capabilities.

That domain belongs to JPM, GS, Blackrock etc.

Actually, speculators are the suckers.

Squid Vicious's picture

with all respect ekm, wtf are you talking about  ?

ekm's picture

A lot of reading.

I am not surprised at this reaction.

CrashisOptimistic's picture

Why would you care care about storage.  

It's stored underground in the oil field.  Or it's stored above ground.

The danger in your perspective is thinking in terms of the phrase oil production.  Oil is not produced.  It is extracted.  You don't produce it and then store it.  It's already stored.

Once you pay for the pipes and pumps, it doesn't cost anything more to store it below ground vs above ground.  Might even cost more to store it above ground.

The reason the price to **extract**, not produce, is high, is that you have to keep drilling holes as the old holes go empty.  The new holes cost money.

But this has nothing to do with storage costs.

ekm's picture

I'm talking about STORAGE CAPACITY, not costs. Costs don't matter since JPM has access to ZIRP.

CrashisOptimistic's picture

But ekm, that does not address your error.

Saudi Arabia has more STORAGE CAPACITY than JPM or GS or whomever.  So does Iran.  So does Exxon.  They all have more storage capacity than JPM.

JPM leasing tankers is completely irrelevant to this matter.  They are just speculating on price, and they are doing nothing more than any country that might choose to close their spigot slightly. JPM has less storage than Exxon.  They and Exxon and KSA are just speculating on price.  Why should they extract from storage and sell at a low price?

There is nothing special about JPM's miniscule storage capacity compared to, say, Trinidad's.  Trinidad may even have more.

 

ekm's picture

Do not forget supply/demand law. How high can the price go, that it will cause zero demand?

Regardless of the artificial scarcity due to storage of crude oil, supply/demand law is as good as gravity law.

Flakmeister's picture

BINGO!

Peak Oil is the point at where free money cannot increase the supply...

From 1994-2004 2.4 trillion dollars in CAPEX gave us about 10 mmbpd more production

From 2005-2010  2.4 trillion gave us a net decrease of 200,000 bpd of production....

Son, costs do matter....

ekm's picture

I have never read Ayn Rand. I probably will, but it's not in my plans right now.

Squid Vicious's picture

FYI - Alisa Rosenbaum... hope that helps your planning!

Mr Lennon Hendrix's picture

EROEI ekm.  It is dropping.

ekm's picture

EROEI is very misleading.

River energy is fro free, it is not spent. Gravity energy is for free, it is not spent.

It could apply to 30-50 years from now, even that how can one calcuate stuff 50 years away.

Mr Lennon Hendrix's picture

How do you capture river energy?  With a dam.  What is a dam made of?  Concrete.  How do you build the concrete dam?  With machines.  What do the machines run on?  Oil.

Factor in maintainence costs over time for dams and what is the EROEI of them then?

What are solar voltaic panels made of?  Oil.

What is the halflife of nuclear waste, and therefor what are the storage costs?  What is the EROEI if the storage costs are infinite?

What has the highest EROEI?  What has peaked production in all Western Nation-States?  Oil.

Why do so many geologists say oil production is peaking in Saudi Arabia?  If oil peaks production in the KSA, how will oil lift it's EROEI considering the KSA is known as the "swing" State?

Any questions?

ekm's picture

Saudi Arabia's oil production is the best kept secret in the world.

The so called scientists, calculated that the reactor in Japan had 1 chance in many milliions to have a disaster.

The calculation took place in 2004. It took only 8 years.

CrashisOptimistic's picture

Second best.

China's domestic oil production is #1.  They report a number and tracking agencies go grab it, but there is zero verification.

Mr Lennon Hendrix's picture

They are using saltwater to pump the last oil out of their reserves.  That is no secret, that is desperation.

Flakmeister's picture

In all fairness Ghawar was developed with a water drive from the get-go...

The fact that their wells water out and are shut and the water cut is rising is a bigger tell... 

Spastica Rex's picture

Hydrogen will replace oil.

Electricity from renewable resources will replace oil.

The sun provides all the energy we need.

Oil is endlessly made by faeries living deep underground.

 

If we can't have never-ending energy growth, everything changes. Everyone understands this at some level.

Flakmeister's picture

It takes some here a *lot* longer than others...

ekm's picture

That's how Gold is manipulated.

Buy it, store it, and then..........lease it.

malikai's picture

I think you mean, buy it, store it, lease it, sell it, sell it short, sell it short again a hundred times more, then lease it some more, the rehypothecate the leases and shorts to "balance" your book.

ekm's picture

One of the schemes, for sure. JPM and others are not forced to show the shorts on their balance sheets and the gov allows that since they are cooperating together.

Leasing something one does not have, is basically shorting.

Hohum's picture

ekm

TPTB cannot do that.  Lower stock prices.