Sunday, November 01, 2015

So-called ‘dumb’ oil deal ready to flow through Washington, D.C.

By Rob Nikolewski

As Raye Miller plainly sees it, a move by the federal government to sell 8 percent of the Strategic Petroleum Reserve to raise $3 billion to $5 billion is “a dumb idea.”

Miller is president of Regeneration Energy Corp. in Artesia, New Mexico and a veteran oil man, whose business has a “whopping number of four employees.”

Miller has seen his share of twists and turns in the Permian Basin, as well as the ups and the downs that characterize this tumultuous industry.

“If they were going to take it out, they should have at least considered doing it at high prices instead of selling it out at $40 a barrel,” Miller told

One provision in a proposed deal reached by the White House and congressional leaders Monday night includes tapping the strategic reserve to help shore up the budget.

“I am pretty happy about that because it reflects our values, growing the economy and the middle class by investing in things like education and job training that are needed, and it keeps us safe by investing in our national security,” President Obama said Tuesday.

The budget deal, which passed the House on Wednesday, is ready for a vote in the Senate. Update 10/30: The Senate passed the budget deal on a 65-34 vote. It now heads to the president’s desk.

For Miller, the deal doesn’t make any sense for a number of reasons, the biggest being the current price of oil.

A little more than a year ago, the global price was at $100 a barrel, but it has since fallen to its lowest point in six years.

“If nothing else, they should hold out until the price goes up where they can actually make more money on it,” Miller said.

But budget negotiators need to make a deal now.

Jason Furman, chairman of President Obama’s Council of Economic Advisers, tweeted out his approval for the deal on Tuesday.

Proponents of the plan to remove 8 percent from the SPR point out the oil won’t be taken until between 2018 and 2025. By then, they hope, oil prices will have rebounded.

The U.S. Energy Department, which oversees the reserve, said the oil cost an average of $29.70 a barrel. That sounds like a pretty good bargain, but ClearView Energy Partners, a research firm based in Washington D.C., reported that, after adjusting for inflation and other costs, the average cost goes up to $74 a barrel.

The Congressional Budget Office predicted Tuesday oil will rise to $70 a barrel by 2018 and increase to $95 in 2025, when 10 million barrels would be sold.

But predicting the price of oil has proven to be, well, unpredictable.

“I guess it’s a new government initiative — buy high and sell low,” Steve Ellis, vice president of Taxpayers for Common Sense, told NPR. “With oil prices as low as they are, they’re not going to generate a lot of revenue. Clearly, this is a one-time insurgence of cash and doesn’t make a lot of sense.”

Dipping into the strategic reserve will add more oil onto an already glutted international market, which will almost certainly put more downward pressure on prices.

Despite the low-price environment, U.S. producers are still churning out millions of barrels a day. Saudi Arabia, the 800-pound gorilla of the Organization of Petroleum Exporting Countries, has set records in recent months for production.

What’s more, thanks to the Iranian nuclear agreement signed off by the Obama administration and six other countries, Iran is expected to soon put an estimated one million barrels of crude on the international market each day.

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