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That seems like an odd financial speculation to partake in as the government. Why not just buy whatever oil they need for the reserve and then speculate using f

by Tenoke 4y ago

That seems like an odd financial speculation to partake in as the government. Why not just buy whatever oil they need for the reserve and then speculate using futures or whatever instruments they like?

deleted 4y ago
[deleted]
Retric 4y ago
Because the entire point of a reserve is to lower peak prices and it doesn’t matter who your selling it too someone inside or outside the country. Global markets respond to global supply and global demand. The other option is to ban exports, but no reason to start there when we have a reserve.
- polski-g 4y ago
  The point of the reserve is to operate military equipment during an embargo. Not to cover up for poor political choices.
  - orf 4y ago
    Incorrect.
  - Retric 4y ago
    The US is a net oil exporter, it currently has nothing to fear from an embargo let alone insufficient oil for military use.
  - WastingMyTime89 4y ago
    The strategic reserve is there to serve strategic purposes. Being able to counterbalance supply restrictions by the Middle East cartel is a very powerful strategic tool. It’s a clever move when you consider that the reserve can be viewed completely differently now that the US is a net exporter.
  - thelamest 4y ago
    This is just not true. In the act that established SPR (https://www.govinfo.gov/content/pkg/COMPS-845/uslm/COMPS-845.xml https://www.govinfo.gov/content/pkg/COMPS-845/uslm/COMPS-845...) there’s much about supply, little about national security, and next to nothing about military: Sec 151(b) [The purpose of creating the Strategic Petroleum Reserve is] to reduce the impact of disruptions in supplies of petroleum products, to carry out obligations of the United States under the international energy program, and for other purposes as provided for in this Act. Sec 161(d)(2) [Secretary of Energy may authorize a drawdown when] (A) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; (B) a severe increase in the price of petroleum products has resulted from such emergency situation; and (C) such price increase is likely to cause a major adverse impact on the national economy. Sec 161(h)(1) [POTUS can authorize drawdowns if] (D) the Secretary of Defense has found that action taken under this subsection will not impair national security,
    - ethbr0 4y ago
      To expand, the genesis of the SPR was the 1973 oil embargo. At that point it was less a question of price than physical availability. Scarcity causes price shocks... but also simply inability to obtain oil at any price. That lack of access creates emergency scenarios, which creates motivational fear, which is the political/strategic power the embargo had. By creating a credibly large stockpile, the US mitigated the emotional (i.e. emergency lack of access) implications of an embargo, which mitigated the strategic effect of the embargo (no fearful, rioting populace, less political pressure), as regardless of price rises the US would have access to oil. So that's why it was created. --- Unfortunately, or fortunately, a credibly-large stockpile also begs the question: why not use its existence during non-embargo times to trade some of its inventory? By definition, you're a seller of last resort and huge volume, so you can always find buyers. And if you expect the price to randomly oscillate, you can sacrifice some temporary amount for a decent profit, refilling when you can. Because remember, you don't actually need the resource unless there's a breakdown in oil markets (e.g. supply disruption or embargo). Any oil sitting in the SPR isn't making you money. The risk scenario for the trading option is: you lessen your available volume too low (in comparison to US consumption/production) and oil producers uses the opportunity to embargo oil for political advantage again. Given the specifics of the world now (US/Canadian production capacity from tar sands and fracking, and most of OPEC needing the revenue from sales to keep their economies solvent), an embargo doesn't seem likely.
  - pessimizer 4y ago
    It is not. The point is to manipulate prices in times when it is beneficial to us. It is a buffer.
harambae 4y ago
> Why not.. speculate using futures or whatever instruments I've wondered this same thing. My guesses are either... - The oil hedge sizes at that level would be so massive, no counterparty could/would take the risk - It would be market manipulation at a level beyond what what the SPR is, and crosses some line but I don't know either.

by Tenoke 4y ago

deleted 4y ago

[deleted]

Retric 4y ago

Because the entire point of a reserve is to lower peak prices and it doesn’t matter who your selling it too someone inside or outside the country. Global markets respond to global supply and global demand. The other option is to ban exports, but no reason to start there when we have a reserve.

polski-g 4y ago
The point of the reserve is to operate military equipment during an embargo. Not to cover up for poor political choices.
- orf 4y ago
  Incorrect.
- Retric 4y ago
  The US is a net oil exporter, it currently has nothing to fear from an embargo let alone insufficient oil for military use.
- WastingMyTime89 4y ago
  The strategic reserve is there to serve strategic purposes. Being able to counterbalance supply restrictions by the Middle East cartel is a very powerful strategic tool. It’s a clever move when you consider that the reserve can be viewed completely differently now that the US is a net exporter.
- thelamest 4y ago
  This is just not true. In the act that established SPR (https://www.govinfo.gov/content/pkg/COMPS-845/uslm/COMPS-845.xml https://www.govinfo.gov/content/pkg/COMPS-845/uslm/COMPS-845...) there’s much about supply, little about national security, and next to nothing about military: Sec 151(b) [The purpose of creating the Strategic Petroleum Reserve is] to reduce the impact of disruptions in supplies of petroleum products, to carry out obligations of the United States under the international energy program, and for other purposes as provided for in this Act. Sec 161(d)(2) [Secretary of Energy may authorize a drawdown when] (A) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; (B) a severe increase in the price of petroleum products has resulted from such emergency situation; and (C) such price increase is likely to cause a major adverse impact on the national economy. Sec 161(h)(1) [POTUS can authorize drawdowns if] (D) the Secretary of Defense has found that action taken under this subsection will not impair national security,
  - ethbr0 4y ago
    To expand, the genesis of the SPR was the 1973 oil embargo. At that point it was less a question of price than physical availability. Scarcity causes price shocks... but also simply inability to obtain oil at any price. That lack of access creates emergency scenarios, which creates motivational fear, which is the political/strategic power the embargo had. By creating a credibly large stockpile, the US mitigated the emotional (i.e. emergency lack of access) implications of an embargo, which mitigated the strategic effect of the embargo (no fearful, rioting populace, less political pressure), as regardless of price rises the US would have access to oil. So that's why it was created. --- Unfortunately, or fortunately, a credibly-large stockpile also begs the question: why not use its existence during non-embargo times to trade some of its inventory? By definition, you're a seller of last resort and huge volume, so you can always find buyers. And if you expect the price to randomly oscillate, you can sacrifice some temporary amount for a decent profit, refilling when you can. Because remember, you don't actually need the resource unless there's a breakdown in oil markets (e.g. supply disruption or embargo). Any oil sitting in the SPR isn't making you money. The risk scenario for the trading option is: you lessen your available volume too low (in comparison to US consumption/production) and oil producers uses the opportunity to embargo oil for political advantage again. Given the specifics of the world now (US/Canadian production capacity from tar sands and fracking, and most of OPEC needing the revenue from sales to keep their economies solvent), an embargo doesn't seem likely.
- pessimizer 4y ago
  It is not. The point is to manipulate prices in times when it is beneficial to us. It is a buffer.

harambae 4y ago

> Why not.. speculate using futures or whatever instruments I've wondered this same thing. My guesses are either... - The oil hedge sizes at that level would be so massive, no counterparty could/would take the risk - It would be market manipulation at a level beyond what what the SPR is, and crosses some line but I don't know either.