Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Why the US stores 700M barrels of oil underground

bbc.com

Post reply on HN
Print view View original

21–30 of 98 posts

Re: Why the US stores 700M barrels of oil underground

#21

Post by retube »

Shivetya wrote: post #10
jacobolus wrote: post #8

> But there’s an important line to draw between that and using an SPR for ad hoc manipulation of the world’s markets. On this point, Martin Young is emphatic: “The oil stocks are not there for price management as such,” he explains, “they’re there to correct a shortage in the market because of a supply disruption.” Strategic reserves can absolutely also be used as an offensive economic weapon, however. As one example…

I am not beyond believing that the current gutting of oil prices was done at the US's behest to damage Russia. It wouldn't take too much in the way of guarantees to Saudi Arabia to have them swamp the markets. Far more effective than military intervention.

Sorry but that's nonsense. It's a well known and indeed publically admitted strategy by the Saudi's to drive US shale producers out of business. Google "saudia arabia united states oil price" for many authoritive hits on the subject.

Russia was collateral damage.

Re: Why the US stores 700M barrels of oil underground

#22

Post by dogma1138 »

Synaesthesia wrote: post #17
Shivetya wrote: post #10

Earlier quoted context omitted.

I am not beyond believing that the current gutting of oil prices was done at the US's behest to damage Russia. It wouldn't take too much in the way of guarantees to Saudi Arabia to have them swamp the markets. Far more effective than military intervention.

It's certainly not beyond conception! As Assange mentioned in this interview, a wikileaks cable showed how the US departments all work together to achieve a Foreign Policy aim, for example when a a country needs to be isolated by the they work together to apply pressure in the economic, diplomatic, military and public relations realm. https://www.youtube.com/watch?v=W3HWiydFlJc

That's how a functional nation works. When the executive branch decides on a policy all of the departments muster to achieve it.

Re: Why the US stores 700M barrels of oil underground

#23

Post by [deleted] »

Synaesthesia wrote: post #17
Shivetya wrote: post #10

Earlier quoted context omitted.

I am not beyond believing that the current gutting of oil prices was done at the US's behest to damage Russia. It wouldn't take too much in the way of guarantees to Saudi Arabia to have them swamp the markets. Far more effective than military intervention.

It's certainly not beyond conception! As Assange mentioned in this interview, a wikileaks cable showed how the US departments all work together to achieve a Foreign Policy aim, for example when a a country needs to be isolated by the they work together to apply pressure in the economic, diplomatic, military and public relations realm. https://www.youtube.com/watch?v=W3HWiydFlJc

[deleted]

Re: Why the US stores 700M barrels of oil underground

#24

Post by Animats »

to3m wrote: post #19
ZeroGravitas wrote: post #9

The use of "hides" is a bit clickbaity, if they said "stores" then people would have thought it a perfectly reasonable thing to do.

Looks like the BBC left their work experience students in charge of the clickbait department. Let's see true professionals at work: http://www.bloomberg.com/news/articles/2015-09-17/even-a-slo...

Of course China is buying now. Oil is cheap. Good time to stock up.

The price of oil is not conspiracy driven at the moment. It used to be, back when OPEC had more control. Now that everybody has fracking technology, supply exceeds demand, and OPEC can't do much about the price.

For an overview of OPEC (mostly Saudi) thinking on this, see [1].

[1] http://business.financialpost.com/news/energy/saudi-arabia-w...

Re: Why the US stores 700M barrels of oil underground

#25

Post by WaltPurvis »

Two quick comments:

"Hides" is a stupid word. It's not hidden; it's well-advertised.

The reporter calls it "expensive" because it costs $200m/year. That's not expensive, that's ridiculously cheap insurance; it's surely one of the most cost-effective government programs in existence.

(I stopped reading at that point.)

Re: Why the US stores 700M barrels of oil underground

#26

Post by static_noise »

WaltPurvis wrote: post #25

Two quick comments: "Hides" is a stupid word. It's not hidden; it's well-advertised. The reporter calls it "expensive" because it costs $200m/year. That's not expensive, that's ridiculously cheap insurance; it's surely one of the most cost-effective government programs in existence. (I stopped reading at that point.)

It's an insurance and once it is really needed it will be worth more than all dollars combined.

In my opinion the amount of stored oil is ridiculously low with about 8 days of world oil consumption. It can only be used to iron out minor hiccups on the world production or to power the US military and US emergency food supply for some time. Is this reporter telling us that this little safety measure isn't worth that amount of money?

Re: Why the US stores 700M barrels of oil underground

#27

Post by lukeschlather »

stephen wrote: post #14
junto wrote: post #11

When my Uncle worked out in China about 15 years ago, a local dignitary was giving him a tour of the local area. He noticed what looked line capped oil wells in the fields. When he asked what they were the official confirmed that they contained oil, which "we will only start using once we can't buy anymore from anyone else". I've never heard of China having their own oil fields so I assume that there was something lo…

Charlie Munger has mentioned the same "use theirs first" approach: "The imported oil is not your enemy, it's your friend. Every barrel that you use up that comes from somebody else is a barrel of your precious oil which you're going to need to feed your people and maintain your civilization." http://seekingalpha.com/article/1631292-charlie-munger-think...

The disingenous (or ignorant) thing about that sort of thing is that it makes no mention of alternative fuel prices. Coal and natural gas can be refined into gasoline. This is obviously not a great idea from an environmental standpoint, but from a cost standpoint it becomes economically viable when oil hits about $70/barrel.

Electrolysis-refined hydrogen becomes economical when oil hits $200/barrel, and that has a lot of environmental benefits. I would bet if oil stayed over $120/barrel for several years the economic incentives would kick in and someone would find a way to make hydrogen cost-competitive, probably even eventually bringing the cost down so it's similar to current oil prices.

http://www.greencarcongress.com/2014/06/20140609-lux.html

Re: Why the US stores 700M barrels of oil underground

#28

Post by refurb »

jacobolus wrote: post #8

> But there’s an important line to draw between that and using an SPR for ad hoc manipulation of the world’s markets. On this point, Martin Young is emphatic: “The oil stocks are not there for price management as such,” he explains, “they’re there to correct a shortage in the market because of a supply disruption.” Strategic reserves can absolutely also be used as an offensive economic weapon, however. As one example…

the US dumped >250,000 tons of copper from its strategic reserves onto the world market

Do you have a source with more details? 250,000 tons of copper doesn't really sounds like much. Wikipedia says annual WW production is 18M tons, so the US dumped 1.4% of one's year production on the market. Sure, enough to depress prices, but for how long? It would seem like you'd need to keep dumping over a long period of time otherwise the price would dip for a few months, then recover.

Re: Why the US stores 700M barrels of oil underground

#29

Post by refurb »

learnstats2 wrote: post #20
mediumdeviation wrote: post #15

Earlier quoted context omitted.

That's interesting, but how is any commodity able to have it's price pushed down by a single seller dumping from a fixed reserve? If the market notice that the extra supply is coming from a fixed reserve, then they'd rightly be able to infer that at some point the supply will run out, and prices will return to market value, which would in turn drive up prices again. It probably won't go back to the previous equilibri…

But this does work in practice - it basically describes OPEC's current strategy, and perhaps relates to Starbucks' ongoing market strategy, etc. The price may return to the equilibrium price at some point, but the single seller is able to hold it low for as long as they have reserves to dump. If other sellers are dependent on sales, then they must compete.

it basically describes OPEC's current strategy

Not really. OPEC's strategy is one of production. Based on their reserves, OPEC could keep it up for decades. If you're dumping a strategic reserve, it has a limited time span and likely the market can estimate how long since the reserve was public info.

Re: Why the US stores 700M barrels of oil underground

#30

Post by pjc50 »

mediumdeviation wrote: post #15
jacobolus wrote: post #8

> But there’s an important line to draw between that and using an SPR for ad hoc manipulation of the world’s markets. On this point, Martin Young is emphatic: “The oil stocks are not there for price management as such,” he explains, “they’re there to correct a shortage in the market because of a supply disruption.” Strategic reserves can absolutely also be used as an offensive economic weapon, however. As one example…

That's interesting, but how is any commodity able to have it's price pushed down by a single seller dumping from a fixed reserve? If the market notice that the extra supply is coming from a fixed reserve, then they'd rightly be able to infer that at some point the supply will run out, and prices will return to market value, which would in turn drive up prices again. It probably won't go back to the previous equilibri…

The price of any commodity is the price at which the marginal unit clears. Given that production tends to be very inelastic and planned a long time in advance, in the short term it can be pushed around quite dramatically.

It's also not at all easy to work out who's supplying what in such a giant market.

(Look at the huge 2008-2009 swing, for example)

Post reply on HN