IEA Replaces One Crude Supply-Limiting Cartel, OPEC, With Another: The TBTF Banks

According to Bloomberg, instead of the crude released by the Strategic Petroleum Reserve going into circulation, "Some of the oil being released from the U.S. Strategic Petroleum Reserve to bring down prices may be held by traders for later sale rather than sent directly to refiners for processing into gasoline or other fuels." In other words, instead of being held in storage by the US government, the oil which is supposed to be used immediately to alleviate supply pressure, will be held in storage by the Too Big To Fails, most likely in storage tankers floating offshore, just like back in late 2008, early 2009, to be released only when the prevailing price is sufficiently higher (not to mention courtesy of added demand from the SPR as it seeks to refill it 5% depleted inventory). But wait, wasn't the release predicated upon it being a supply emergency with a need for immediate release?

Ironically it is JPM's own Lawrence Eagles, head of oil research, who said that "every additional barrel of oil stored in the U.S. is a barrel that does not need to be imported, ultimately freeing up barrels to move to Europe. It worked very effectively after Hurricane Katrina in 2005 and should do so this time around." What he did not specify is held by whom. And here is the kicker: "The DOE has no preference for bids from refiners versus traders and both have participated significantly in past sales,” an official from the Energy Department wrote in an e- mail. “There is nothing to stop buyers from putting the oil they have purchased into their own storage." Well in that case the DOE would be advised to know that JPM, which is expected to bid and purchase a substantial portion of the crude to be released, together with Goldman Sachs, have already been alleged to be a supply-limiting cartel when it comes to LME commodities. In its infinite stupidity, the administration and the IEA have merely moved supply constraints from one oil cartel, OPEC, to another: one led by the Too Big To Fail banks.


The U.S. Energy Department is offering 30 million barrels of light, low-sulfur crude for sale, half of the 60 million barrels to be released by International Energy Agency member nations to make up for the loss of Libyan oil exports during the civil conflict. The government closed bidding for the oil yesterday.

The sale was “substantially oversubscribed,” with more than 90 offers to purchase oil, the department said in an e- mailed statement. The department expects to award contracts by July 11 and announce purchasers and sales prices at that time.

The oversubscription indicates that supply disruption is a factor and that all 30 million barrels will be placed into the market, an administration official said. The administration will continue to monitor the oil supply and is prepared to act further, according to the official.

Representatives of trading companies including JPMorgan Chase & Co., Morgan Stanley (MS), Hess Trading Company and Koch Supply & Trading LP joined Valero Energy Corp. (VLO) and Statoil ASA in questioning Energy Department officials June 28 about shipping options and requests for waivers of the Jones Act.

The Jones Act restricts the shipment of goods between U.S. ports to American-flagged vessels. Most oil is shipped on foreign-flagged vessels.

A lack of American-flagged vessels of adequate size means a buyer of SPR oil who wants to store the oil or send it to refineries on the East Coast may require a waiver of the Jones Act. There are two available tankers, according to a list on the Department of Transportation’s Maritime Administration website, along with barges that can hold up to 233,951 barrels. The per- barrel cost to ship oil typically is lower with a larger ship.

The tankers are the Overseas Chinook, currently in Brazil, and the Overseas Cascade, anchored in the Houston Ship Channel, according to AISLive shipping data compiled by Bloomberg. Each can hold 300,000 barrels of oil, the minimum parcel that can be loaded on a ship from the SPR, according to the notice of sale.

Government officials on the conference call said that oil could be loaded on one foreign vessel and later delivered back into the U.S. on a different foreign tanker, provided that information on both ships was included in the waiver application. A waiver would not be needed if oil were loaded and then redelivered to the same berth at a particular terminal, according to the officials.

In other words, any banks winning crude, will put it on a ship somewhere with promises of future deployment, although when that future point comes, is unclear. In the meantime, as the mid-summer sun rises, WTI will pass $100 very soon again and more SPR oil will have to be transferred from the US government to JP Morgan once again.