4 ms·

"I don't get why people don't just store crude oil and not process it for a bit (I'm guessing six to eighteen months)?" It's the same answer as a lot of "econo

by jerf 7y ago

"I don't get why people don't just store crude oil and not process it for a bit (I'm guessing six to eighteen months)?" It's the same answer as a lot of "economic mysteries" right now: At scale, everything is really hard. If we have all this commerically-targeted food that can't go to the consumer market, why can't they just sell it in stores? Well, at scale, everything is really hard. You have to set up supply lines. You have to set up packaging. You have to get the stores to stock it and price it and just a whole bunch of things. Existing consumer supply lines can't be used because they're generally at capacity. Your commercial supply lines are different in numerous ways, from the companies that have it down to the physical nature of the trucks delivering it. And on and on. The other problem you have is that even though bringing this all up is perfectly possible, it's highly risky. What if the companies spend all this money to bring up a new supply chain or massive amounts of new oil storage, only for the problem to resolve itself a week before it opens? You could build a big storage tank only to open into a market of record high prices for all you know. Sure, if you had a magic crystal ball there's probably all kinds of ways you could make make massive amounts of money from this disruption, but nobody has one.

ajross 7y ago
> It's the same answer as a lot of "economic mysteries" right now: At scale, everything is really hard. Except this has already been scaled, and is already happening. The US strategic petroleum reserve (and similar programs in other nations) is exactly this: a giant buffer of storage capacity designed to make cartel exploitation of the oil industry infeasible. And it works. The reason we're having this crash now, when the lockdowns started 6+ weeks ago, is precisely because there is a big pool of idle storage able to "store the crude and not process it for a bit". But now all that buffer is exhausted, so we're seeing the crash everyone knew was coming.
- echelon 7y ago
  > But now all that buffer is exhausted Is it full? I recall that the stimulus bill originally included a provision to buy more oil for the strategic reserves, but that the measure got removed by the Democrats. (Both sides are capable of making mistakes...) We should be buying right now.
  - rovolo 7y ago
    Why is it a mistake to not buy oil for the strategic reserve right now? The mission statements are all talking about dealing with low supply, but the problem right now is low demand. Is the mistake that it would be cheap right now to "top-up" the reserve? > The mission of the Office of Petroleum Reserves (OPR) is to protect the United States from severe petroleum supply interruptions through the acquisition, storage, distribution, and management of emergency petroleum stocks https://www.energy.gov/fe/services/petroleum-reserves https://www.energy.gov/fe/services/petroleum-reserves > The sheer size of the SPR (authorized storage capacity of 713.5 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy. > Such conditions have only existed three times, most recently in June 2011 when the President directed a sale of 30 million barrels of crude oil to offset disruptions in supply due to unrest in Libya. > to address short-term, emergency supply disruptions to a refiner's normal operations on several occasions. https://www.energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve https://www.energy.gov/fe/services/petroleum-reserves/strate... It looks like they're going to lease excess capacity instead. Oil producers will be able to store excess oil themselves: https://www.worldoil.com/news/2020/4/14/doe-working-to-lease-out-23-mmbbl-of-strategic-petroleum-reserve-capacity https://www.worldoil.com/news/2020/4/14/doe-working-to-lease...
- jerf 7y ago
  I was implicitly answering the question of "why not just build more"? I know we have some. It is true that we have some already, and that does make it somewhat easier to build more (it's not like we've never done it before, we have the software and businesses ready to go, the tooling presumably exists somewhere), but there's still substantial expenses that doesn't help with (the tanks still have to be built, land may have to be acquired, you can't just build one in the middle of nowhere in Kansas, you have to have it where the oil can be shipped to, inspections and permits because even under these circumstances I'd still rather like at least the important ones to happen for something like this, etc.).

by jerf 7y ago

ajross 7y ago

> It's the same answer as a lot of "economic mysteries" right now: At scale, everything is really hard. Except this has already been scaled, and is already happening. The US strategic petroleum reserve (and similar programs in other nations) is exactly this: a giant buffer of storage capacity designed to make cartel exploitation of the oil industry infeasible. And it works. The reason we're having this crash now, when the lockdowns started 6+ weeks ago, is precisely because there is a big pool of idle storage able to "store the crude and not process it for a bit". But now all that buffer is exhausted, so we're seeing the crash everyone knew was coming.

echelon 7y ago
> But now all that buffer is exhausted Is it full? I recall that the stimulus bill originally included a provision to buy more oil for the strategic reserves, but that the measure got removed by the Democrats. (Both sides are capable of making mistakes...) We should be buying right now.
- rovolo 7y ago
  Why is it a mistake to not buy oil for the strategic reserve right now? The mission statements are all talking about dealing with low supply, but the problem right now is low demand. Is the mistake that it would be cheap right now to "top-up" the reserve? > The mission of the Office of Petroleum Reserves (OPR) is to protect the United States from severe petroleum supply interruptions through the acquisition, storage, distribution, and management of emergency petroleum stocks https://www.energy.gov/fe/services/petroleum-reserves https://www.energy.gov/fe/services/petroleum-reserves > The sheer size of the SPR (authorized storage capacity of 713.5 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy. > Such conditions have only existed three times, most recently in June 2011 when the President directed a sale of 30 million barrels of crude oil to offset disruptions in supply due to unrest in Libya. > to address short-term, emergency supply disruptions to a refiner's normal operations on several occasions. https://www.energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve https://www.energy.gov/fe/services/petroleum-reserves/strate... It looks like they're going to lease excess capacity instead. Oil producers will be able to store excess oil themselves: https://www.worldoil.com/news/2020/4/14/doe-working-to-lease-out-23-mmbbl-of-strategic-petroleum-reserve-capacity https://www.worldoil.com/news/2020/4/14/doe-working-to-lease...
jerf 7y ago
I was implicitly answering the question of "why not just build more"? I know we have some. It is true that we have some already, and that does make it somewhat easier to build more (it's not like we've never done it before, we have the software and businesses ready to go, the tooling presumably exists somewhere), but there's still substantial expenses that doesn't help with (the tanks still have to be built, land may have to be acquired, you can't just build one in the middle of nowhere in Kansas, you have to have it where the oil can be shipped to, inspections and permits because even under these circumstances I'd still rather like at least the important ones to happen for something like this, etc.).