Oil Crisis INCOMING? Why US Reserves Are At RISK!!

Oil is a country’s lifeblood it’s what Powers the economy and those with Limited supplies of it are at a Strategic and material disadvantage this Is why the United States has the Strategic petroleum Reserve or spr However in recent weeks the SBR has been At dangerously low levels levels not Seen since 1984. it’s gotten so low that There are many wondering if it could Threaten America’s security This is exactly what I’m going to cover In this video today so don’t go anywhere Foreign Before we go any further we need a bit Of an intro into the spr Back in the 1970s there was an oil price Crisis unlike any scene before this was Caused by the organization of the Petroleum exporting countries or OPEC Deciding to cut off supplies to all Those countries that supported Israel During the Yom Kippur War This played out in 1973 when the price Of oil tripled in less than a year it Got so bad that in November president Richard Nixon asked citizens to lower Their thermostats refrain from driving On Sundays and go easy on their Christmas light displays not too Dissimilar from some of the policies Being suggested in Europe right now Anywho the result of this crisis was That the U.S embarked on a strategy of

Energy Independence and part of that Initiative was the creation of the Strategic petroleum Reserve The spr consists of federally controlled Oil stocks that are stored in huge Underground Salt Caverns at four sites Along the coastline of the Gulf of Mexico The total storage limit of the spr is Over 714 million barrels and because of its Location near big U.S refineries the spr Can ship up to 4.4 million barrels per Day by some estimates it can take only 13 days from a presidential say-so for The first oil to enter the U.S market Now in terms of the mechanics of how it All works the energy Department usually Holds an online auction in which energy Companies will bid on the oil There are also separate swap agreements Where oil companies will take the crude But they are required to return it plus Interest The spr was originally conceived to Address supply shortages but it has Increasingly been used as a price Suppression tool Oil has been released from the spr on Three previous occasions these were in 1991 during the first Gulf War 2005 in The wake of Hurricane Katrina and 2011 During the war in Libya I should also Note that the United States is not alone

In its storage of strategic oil other Members of the iea or International Energy agency such as Britain Germany Japan and Australia are required to hold 90 days worth of net oil imports in Reserve China the world’s second largest oil Consumer also created its spr 15 years Ago speaking of which China has been Filling up its Reserves at an Increasingly frenetic Pace it may Interest you to know that back in February of this year just before the Invasion of Ukraine the Chinese were Doing exactly this at a time when the Rest of the world was frantically Releasing its stocks in order to Stave Off Rising prices now moves like this Are generally coordinated between Countries but not this time so Effectively we had a situation in which China was buying while the rest of the World was selling almost as if they knew Something the rest of us didn’t hmm So that brings us to late March with the War in Ukraine by now in full swing the Price of oil was skyrocketing and even Breached the 130 a barrel level Not only that but the sanctions being Rolled out against Russia were leading To even further disruptions in the oil Market as countries in Europe were Severely restricted from buying Russian Oil more about that in the description

The impact of these higher oil prices Was that consumers around the world Started feeling the pinch at the pump And global leaders started needing to Come up with Solutions The quickest and easiest option was of Course to turn to their strategic oil Reserves and that is exactly what they Did The White House announced that it would Release one million barrels a day for a Period of over six months according to The press release from the White House At the time quote the scale of this Release is unprecedented the world has Never had a release of oil Reserves at This one million per day rate for this Length of time this record release will Provide a historic amount of Supply to Serve as a bridge until the end of the Year when domestic production ramps up This wasn’t just Bluster by the White House either it was indeed an Unprecedented release of Reserves The release had a notable impact on the Price of oil it fell by almost five Percent on the day as the markets Digested the exact impact the White House’s decision would have going Forward the thing is that this was Supposed to be a temporary release that Would hold the country over for the next Six months As noted by Goldman Sachs though quote

This would remain however a release of Oil inventories not a persistent source Of supply for coming years Such a release would therefore not Resolve the structural Supply deficit Years in the making so quite simply There were structural issues in U.S Supply that wouldn’t be able to make up For the shortfall in the longer term Why is that exactly Well it’s the result of a combination of Factors which mostly come down to either Market dynamics or politics from the Market dynamics perspective during the Covert pandemic oil demand was Completely crushed which sent prices Through the floor and I mean that quite Literally There was a point at which the price of Oil actually went negative for a period Of time many energy companies went under As a result of this while many more Decided to completely curtail any Further investment in new energy Supply This meant that U.S oil production had Fallen to below 10 million barrels a day And there was no incentive to Source new Supply So that was the impact on demand from The pandemic but then of course you also Had the political slant There is no doubt that the new U.S Administration wasn’t in favor of Policies that would boost fossil fuel

Production with climate change in mind Sustainable energy initiatives were Pursued at the expense of the oil and Gas industry For example producers claim that limits On fracking by States and the closing of Certain coastlines such as Alaska and California have also impeded their Ability to drill new wells not only that But the Biden Administration froze new Oil and gas leases earlier this year This amid a legal battle over the cost Of climate change The Crux of the issue was the quote Social cost of carbon a metric that uses Economic models to put a value on each Ton of carbon dioxide emitted speaking Of which you can watch our video on Individual carbon credits which will be Linked to in the description for you Anywho the goal of this measure was to Quantify the economic harm caused by the Climate crisis from the likes of sea Level rise more destructive hurricanes Extreme Wildfire seasons and flooding The only issue was that a federal judge Found this tool to be illegal and issued An injunction As a result of that the administration Decided to freeze the issuance until There was Clarity around the measure This all took place in early February Just a few weeks before Russia invaded Ukraine talk about bad timing

Then of course there’s the much larger More pressing question of the infamous Keystone Pipeline for those unfamiliar The Keystone Pipeline was a nine billion Dollar project that was expected to Bring at least 900 000 barrels a day From Alberta to Nebraska 90 of the Amount released from the Strategic Reserves earlier this year by the way This has been a hot political issue for Almost 12 years and was constantly Delayed on environmental grounds however Matters reached fever pitch last year When Biden officially canceled a key Permit many had expected this given that He’d made it a key campaign promise However once it was done there were many Who pointed out how this could threaten Energy security that’s because according To the U.S state Department back in 2014 America’s Energy System had a need for More heavy crude from Canada to replace Declining volumes from Mexico and Venezuela the latter not a country you Want to have to rely on for oil imports And paradoxically that oil coming from Canada has to be brought down to the Refineries using either trucks or rail Which cause a fair bit of environmental Harm themselves I’ll leave a link to This Forbes article in the description Which goes into it all in a lot more Detail now I don’t want to get into the Politics of all this my point is that

U.S domestic energy production and Imports have not been able to keep up With demand which means that the Administration has had to tap that Strategic Reserve more often than Absolutely needed The latest release from the spr came Last week when OPEC announced that they Would be cutting oil production by 2 Million barrels per day from November This was the largest Supply cut since 2020 and is equivalent to about two Percent of Global Supply Now the White House pushed hard to Prevent the OPEC cut for example three Months ago Biden made his first official Visit to Saudi Arabia and was seen fist Bumping the Crown Prince pretty awkward But more recently there has been intense Lobbying by the U.S government behind The scenes to try and prevent the cut Officials from across the administration Were involved in reaching out to OPEC Members even Janet Yellen herself made The case for not cutting oil production Explaining that it could be damaging to The global economy of course one can’t Dismiss the ulterior motives here the U.S is about to head into a midterm Election and high gas prices don’t sit Well with the voting public The U.S Administration is also trying to Reduce Russia’s Revenue so Biden and Co Weren’t too happy with opec’s move and

It could further strain relations Between the White House and Saudi Arabia’s royal family indeed given that Biden visited the kingdom in July it Could have been seen as a personal Slight now whatever the politics behind The move the cut happened and that sent Oil prices up on the day and at a local Level in the U.S gas prices were already Starting to creep up in a number of States for example last week the National averaged breached 3.80 a gallon The second straight week of increases This of course prompted the government To dip into those savings again on Friday last week Biden said that he Would release another 10 million barrels From the spr Here you can see a graph of the spr Releases over the past 35 years as you Can see 2022 has been a bump a year for Releases and has seen almost 200 million Barrels drained and based on the current Trajectory it’s possible that the SBR Could be completely drained by November 2023 crazy That’s also assuming that there aren’t Even larger releases later this year Note that the Russian oil price cap has Officially been signed off essentially Any country that buys Russian oil above The cap risks being sanctioned of course Russia isn’t going to take that well and Has threatened to restrict Supply to any

Country that engages with the cap Less Supply higher prices more strategic Releases from a rapidly depleting Reserve the picture doesn’t look good Why is that Well the world is becoming seemingly More dangerous by the day Russia has Threatened to use nuclear weapons in Ukraine while China is adopting an Increasingly aggressive stance towards Taiwan This latter point is particularly Concerning because of China’s own Stockpiling of oil and fun fact some Chinese companies have also bought oil From the U.S strategic Reserve This caused political uproar in the States and some Republican politicians Introduced a bill to stop the Administration from selling oil to Foreign enemies There’s also the broader question of Whether using the Strategic Reserve as a Method of price control is a wise one That’s because the spr’s original intent Was to address shortages that threatened Energy security however by using the spr To drive down prices you’re effectively Meddling with the free markets Allocation of resources For example Shale oil drillers and other Companies in the US are less Incentivized to drill for new Supply if The price is artificially controlled the

End result is a more precarious longer Term position especially if the spr runs Out Under investment brings the supply Down Still further Supply that would be Sorely needed if for instance a war were To break out So the lesson here is clear don’t raid The rainy day fund because you never Know when a thunderstorm may hit OK time for some of my personal thoughts On this if there’s one thing that the Past few months has taught us it’s that Energy security should be Paramount Europe is learning that the hard way and Other countries should sit up and take Note When it comes to the United States an Under investment in oil exploration and Transportation means that it could be Held hostage by OPEC indeed the intense Lobbying actions of the Biden Administration prior to the cut are Proof that they desperately needed to Avoid these Cuts especially with the Midterms around the corner now that OPEC Has snubbed the US government those spr Reserves are being tapped once again However it’s only a finite Supply and It’s at risk of eventually running dry The nation’s energy security should not Be compromised by using an emergency Tool to lower gas prices especially if The ends are potential votes in an

Election not only that but the price Suppression caused by tapping the spr Could lead to further under investment At a time when that is sorely needed the World has become an increasingly Dangerous place and America’s enemies Have been working to secure their own Oil supplies they have no issue buying Russian oil and stockpiling it in their Own reserves in a time of War any oil Will be a scarce commodity and whether That came from a sanctioned country or Not won’t be of concern so then what do We do well it’s a tricky one OPEC still Wields an outsized control on the global Oil markets and investment into sourcing New Supply takes time however there is No time like the present perhaps they Should once again consider the potential Merits of the Keystone Pipeline is Shelving that project really in America’s best interests at a time like This I also think that politicians should Allow the Dynamics of supply and demand To address supply shortages price Increases are unpalatable yes but they Are a necessary evil to Source new Supply in the longer term we could have A situation whereby more sustainable Prices are possible without having to Rely on the Goodwill of OPEC those are Just my opinions though you may think Otherwise

And that’s it for my video today ladies And gents but I am Keen to get your Feedback as ever so what do you think About the US government tapping the spr Do you think that it could have a Long-term impact on energy security I’d Love to know in the comments below in The description you can also find links To all the other places that you can Follow me Twitter telegram Instagram and Tick Tock if you want a preview of what Videos are about to be released as well As my personal portfolio then you should Also sign up to my free newsletter all Of that down below oh and if you would Like to support the channel then you Should also head on over to the coin Bureau merch store that’s where you can Pick up this magical number and so much More Finally if you think this crypto guy did A fine job smash up that like button Don’t forget to hit that subscribe Button as well oh and don’t forget the Bell either so YouTube can give you a Bell as well till next time folks take Very good care of yourselves until then Foreign [Music]