Reserve

This past week I read an article on how low crude oil supplies are at a major supplier in the United States. While gas prices had been increasing for over the first half of the month, a slight decline has since occurred. Talking heads who are to know much about the oil industry and supplies were talking about crude oil reaching $100 a barrel. As gas prices have subsided the talking heads are now saying that is unlikely. 

Gasoline demand declines at the conclusion of the summer travel season, and with weakening economies in China and Europe, further decline in prices are occurring. 

In 2022 President Biden sold, in what is termed an "emergency" sale of 180 million barrels of oil from the United States Strategic Petroleum Reserve (SPR), in order to bring down gas prices with the approaching mid-term elections. His administration said he would resupply the reserve at a lower price point, but this has failed to occur due to the geo-political intrusion of Saudi Arabia and Russia announcing production cuts, which partially led to the increased oil prices. Maybe he will finally get his opportunity to resupply the SPR. The Energy Department indicates that the current total capacity of the SPR is 714 million barrels, although as of Sept 1, 2023 it contained only 349 million barrels, so it is about 48% full. The US currently uses about 20.1 barrels of oil a day; the 1 Sept level then means that there is just about a 17 day supply in case of an emergency. The 2022 emergency sale was more than all the combined sales (emergency, mandated, and modernization sales) that occurred from the first sale in 1985, to present time, and this even includes a mandated sale in 2022. The 2022 Biden sale was 16.6 million barrels more than all of the prior sales (which includes the 2022 mandated sale) combined. Sales have occurred since 1985. Most of the prior emergency sales were to offset the supply interruptions usually caused by Hurricanes. 

Strategic Petroleum Reserve Sites, US Dept of Energy

Just as the US strategic reserve is located in the south, Louisiana and Texas, so is much of our oil refining capacity. While 30 states have oil refineries, the US Gulf Coast states have the most. Four of the top five US refineries are in Texas, the other in Louisiana. Of the top ten refineries, only two (Indiana and California) are not a Gulf Coast state. There is some irony in the fact that two of the states frequently hit by hurricanes hold the SPR, and most of the nation's refining capacity.

Further, the move to electric is causing oil industries to think about any new investment, as they wonder whether or not the investment would not pay for itself over the long term. Remember how high gas prices in the nation were before the great recession? (I think gas prices helped cause the great recession as people moved further and further from work to get cheaper housing, thinking gas would not go up much then it went up a great deal, and they could not afford gas, food and mortgage.)

2019-2022 SPR Sales, US Dept of Energy

There are reserves for more than oil. The Federal government has (had) reserves of personal protective equipment, and ventilators. One problem, found during COVID in the spring of 2020, was the ventilators were so old that the new technicians did not know how to get them working. Some PPE expired. The government also maintains supplies of some vaccines, antibiotics, IV equipment, and some other drugs. The Department of Defense maintains stockpiles of minerals and non-mineral items from the common iodine and talc to niobium, a rare earth mineral (used in fighter jet engines). They also stock pile ammunition, but the pile must not be that large since is has pretty much been expelled in the ammunition sent to Ukraine. Russia must be in some dire situation too as they have turned to North Korea for some assistance. 

Stockpiles of goods are not unlike a reserve fund that businesses, governments and people should have (also called savings). It can get you through in a tight time frame. The Madison Metropolitan Sewerage District has a minimum cash reserve as a percent of its overall budget. The cash reserves are used to cover operating expenses between receipt of quarterly sewer charge payments, and to offset unexpected costs. 

Gas Prices Winter 2022 to Present

The world still runs on gasoline and petroleum. Although, I wonder if the coming stringent gas mileage standards will have an effect. The electric vehicle market is, according to a reporter with Yahoo Finance, softening even as more manufacturers enter the market. Electric vehicles have a number of obstacles to overcome, cost, charging stations, time to charge, not to mention battery operation in cold temperatures. Heck, the AGM battery in my car has not fully charged in over a year to allow the stop-start to operate. (With all the electronics in new cars the battery is good for only about five years now, at least from what I read several months back.) 

The SPR will be in existence for some time to come. With the SPR at less than half its authorized capacity, I am not sure much wiggle room remains without putting the nation at risk in case a emergency event occurred where petroleum is need to offset disruptions from catastrophic events from nature or humans. Just like we have cash reserves in government, and in our private homes, so too should the government have a reserve of petroleum, and other valued resources. The main thing is to use the reserve wisely.