This sent from Eddie Shuffle .Thanks Eddie<\/p>\n
FROM A DOOMBERG ARTICLE A FEW WEEKS BACK<\/p>\n
Do we really need a strategic petroleum reserve?<\/p>\n
Doomberg
\nSo it\u2019s a great question. It very much depends on which country you\u2019re in. So it\u2019s probably worth doing a bit of a historical sort of telling of how we got to this situation. So they\u2019re twin issues. So when Nixon removed the US off the gold window and then you had the war in the Middle East back then, the Arab oil embargo ensued.<\/p>\n
And what was born out of that was the IEA, the International Energy Agency, and the mission of the IEA was to protect the developed world, the oil importing countries at that time, from such supply shocks by mandating that all of the member states of the IEA held 90 days of oil or refined products in inventory at the ready for just such an eventuality. It was a twinning of the gold and oil stories in a way that is like echoing today in this war in the Middle East.<\/p>\n
Now, the US at the time was the world\u2019s largest importer of crude. Now you fast forward to today where 15 years into the shale revolution and the US is not actually an importer of crude net. We\u2019ve addressed this. There\u2019s a bunch of nonsense floating around on Twitter trying to argue that the US is somehow not an energy superpower.<\/p>\n
It\u2019s just, I\u2019ll catch myself before I say something I regret. So the US actually doesn\u2019t need a strategic petroleum reserve, but it has one. It\u2019s a big one. And what it has done, again, I give credit to my good friend Sir JJ over at Market Fives. Jack Johnson writes a great Substack twice a day. Can\u2019t recommend it enough. He pointed out, I think quite cleverly, that the US is not draining its strategic Federal Reserve right now, it has lent oil to Exxon and Chevron who are to pay back that oil with interest, not in dollars, but in barrels.<\/p>\n
And so all of the oil being lent to the market right now for the exact purpose of managing the crisis is to be paid back. And the credit of the people borrowing is just as good as US Treasuries. In other words, Exxon\u2019s corporate credit rating is incredible. And so the oil is still there. It\u2019s just in the form of future deliveries where the person standing on the other side of your transaction is Exxon or Chevron or pick favorite.<\/p>\n
And viewed through that lens, I think the collective working capital of oil sitting around the world has now pivoted from being viewed as an efficiency drag to a resilience boon because the value saved by shaving off the marginal price spike is integrated across the entire transaction suite.<\/p>\n
And so coming out of this crisis, I don\u2019t imagine any country in the world is going to say, I\u2019m going to take a few months to top off my stores. Like they\u2019re not, as if they\u2019re not going to say that now. And so Australia is not going to be caught with 30 days again and the US will refill its strategic reserves. It\u2019s already got the legal mechanism in place for that to happen organically.<\/p>\n
And every other country in the world is going to look around and say, you know, as oil slips back down to 70 and 65 and 50 and 40, which is coming, maybe we\u2019ll go in and that slope will be buffered a bit by this investment in resiliency that these stores bring. And then what do you have? What you have is a world awash in natural gas and natural gas Metals Liquids that has run through the gauntlet of the closure of the Strait of Hormuz and come out of it way better than expectations. And, um, lower for longer, consistent with our long-term view that all shortages are followed by gluts.<\/p>\n
Venezuela, Guyana, and The New World\u2019s oil
\nMonetary Metals
\nDoomberg, I got to say, it\u2019s always fascinating having you on the podcast, but your last answer actually proved my last video wrong. I did an oil versus gold video explaining the differences between oil and gold, and I said that unlike gold, you can earn a yield on gold paid not in dollars but in more ounces of gold.<\/p>\n
That\u2019s not true of the oil market, but it turns out I\u2019ve been proven wrong on this podcast. Oil can actually be loaned and paid back in more barrels of oil. Very fascinating. And I want to ask you a question about these oil companies. We\u2019ve heard this idea that, well, a lot of these oil companies, they wanted to get oil out of Venezuela because Venezuela had all this great oil reserves.<\/p>\n
They pushed out these U.S. and Western oil companies. Now that the U.S. is kind of more strategically involved in Venezuela, if you want to call it that, these oil companies are now going to start refining and producing oil from Venezuela. How true is that idea and how important is that Venezuelan oil to America\u2019s oil independence?<\/p>\n
Doomberg
\nYeah, so before I do that, I just want to close the loop on this loaning of barrels. The best part of it all is that the president and his administration could do this without congressional involvement because there\u2019s no dollars changing hands, only barrels. And so it\u2019s not an appropriation or any sort of congressional oversight at all. And look, when you have Scott Bessin and Chris Wright in the seats of Treasury and Energy respectively, then, you know, you have two people who know far better than you and I what they\u2019re doing.<\/p>\n
So to your question on Venezuela, Venezuela\u2019s an interesting one. We just did a full deep dive analysis on Guyana for our May Doom Zoom, and I don\u2019t think that the Guyana story is independent of what\u2019s been going on in Venezuela. So Exxon discovers a generational asset offshore in Guyana, really one of the most remarkable finds of this sort of generation from zero to a million barrels a day almost in a matter of less than a decade, which is just unheard of and for one, you know, bloc. And Exxon had been kicked out of Venezuela. Chevron stuck around. You have the armada of super majors assembling offshore in Guyana.<\/p>\n
Venezuela\u2019s then leader, president, dictator, pick your favorite adjective, Nicol\u00e1s Maduro was agitating to resuscitate a century-old border claim against Guyana that would have then enveloped the offshore assets of Exxon into Venezuela. And then next thing you know, total coincidence, US military snatches him The US is back in Venezuela. Color us skeptical, but we first wrote about the prospects of all of this back in a piece we wrote in December of 2023 called The New World\u2019s Oil, foreshadowing the Monroe Doctrine.<\/p>\n
So when you look at northeastern coast of South America, you have Venezuela, Trinidad and Tobago offshore, Guyana next door, Suriname next to that. There\u2019s 5, 6 million barrels a day of oil to be had there. Easily. Venezuela used to produce 4. It was doing less than 1 before the events of early January. You have Trinidad and Tobago, which is a natural gas powerhouse right there offshore. You then have Exxon next door in Guyana. They\u2019ll probably get that to 2, 3 million barrels a day, an enormous amount of natural gas. Surinam next door, right on the edge of Guyana. So just there, forget about the, the rest of the southern part of the Western Hemisphere.<\/p>\n
And then you mix in the fact that Venezuela\u2019s oil oil is heavy, similar consistency, you know, gravity, sulfur content to that of Western Canada in Alberta, and that US refineries are optimized to run such grades. And the fact that the oil being produced in the Permian and the other shale regions in the US is much lighter, the synergistic combinations of the two makes for an ideal slate for refining in the US.<\/p>\n
And it all just kind of makes sense. And that\u2019s why the war in Iran is such a mystery to us and such own goal\/catastrophic mistake by Trump. The Western Hemisphere in the New World\u2019s oil, we estimated, you know, from the southern tip of Argentina to the Arctic has an extra 10-12 million barrels a day of oil to be had and an infinite amount of natural gas. Like, what are we doing in the Middle East? Let China figure that out. But anyway, I digress.<\/p>\n","protected":false},"excerpt":{"rendered":"
This sent from Eddie Shuffle .Thanks Eddie FROM A DOOMBERG ARTICLE A FEW WEEKS BACK Do we really need a strategic petroleum reserve? Doomberg So it\u2019s a great question. It very much depends on which country you\u2019re in. So it\u2019s … Continue reading