Say goodbye to $2 gasoline. Most likely you’ll never see it again.
You’ve probably heard that gasoline prices are to ease off after the Labor Day weekend. And I really don’t doubt it. But they’re not going to fall back to pre-Katrina prices I can assure you.
That’s right. It’s over $3 from now on. And guess what…you’re getting screwed.
Gas stations are charging you a marked up price on current gasoline futures rather than a marked up price on what they actually paid for the gas.
It’s like this. Any gas station that filled up their tanks two weeks ago paid $1.80/gallon. With taxes and profit they were charging around $2.50/gallon.
But here’s the thing. They still have the same gas in their tanks that they paid $1.80. But they’re charging you a marked up price on current gasoline futures of over $2.30. Talk about dishonesty.
Price Gouging – Pricing above the market when no alternative retailer is available.
I generally would agree that putting caps to gasoline prices is a bad idea. However, I believe that the U.S. government should have enforced a temporary nationwide gas cap of $3 to curb price gouging.
But what did they do instead? They released oil reserves from the Strategic Petroleum Reserve. A typical a**-backwards move by the government.
And I hate to tell you, the release will do next to nothing to reduce gas prices.
Crude oil still needs to be refined. And with eight refineries KOed in the south and the rest of the country’s refineries running at full capacity, where’s the oil going to be refined?
What is the U.S. Strategic Petroleum Reserve?
The U.S. Strategic Petroleum Reserve gained media attention last week after President Bush decided to open the reserve to curb high gasoline prices. But what exactly is the reserve and why does the government have it?
The Strategic Petroleum Reserve is the largest stockpile of government-owned emergency crude oil in the world containing over 700 million barrel of crude oil.
The SPR was created by Congress in 1975 after ’73-’74 oil embargo. The embargo cutoff of oil supplies streaming into the United States from Arab nations. The interruption of energy supply sent economic shockwaves throughout the nation. In the aftermath of the oil crises, the United States established the SPR.
The reserve was created to provide the President with a powerful response option should another disruption in commercial oil supplies threaten the U.S. economy.
It also allows the United States to meet part of its International Energy Agency obligation to maintain emergency oil stocks, and it provides a national defense fuel reserve.
The crude oil is stored deep in the massive underground salt caverns of Texas and Louisiana. The reserve contains 62 of these huge underground caverns. One of these caverns is deep enough to hold Chicago’s Sears Tower building with room to spare. That’s one helluva hole.
The caverns offer the best security and are the most affordable means of storage, costing up to 10 times less than aboveground tanks.
Storage locations along the Gulf Coast were selected because they provide the most flexible means for connecting to the Nation’s commercial oil transport network. The Strategic Reserve oil can be distributed through interstate pipelines to nearly half of the nation’s oil refineries or loaded into ships or barges for transport to other refineries.
In the event of an energy emergency the decision to withdraw crude oil from the SPR are made by the President. The SPR has been used for emergency purposes only once during Operation Desert Storm in 1991. The SPR’s formidable size makes it a significant deterrent to oil import cutoffs and a key tool of foreign policy.
Today, the SPR has the capacity to hold 727 million barrels.
Key Numbers
Current inventory 700.3 million barrels
Storage capacity 727 million barrels
Current days of oil imports 59 days
Maximum drawdown 4.4 million bpd for 90 days
Time for oil to enter U.S market 13 days from presidential decision
Average price paid for oil in the Reserve $27.25 per barrel
Together, the facilities and crude oil represent a more than $21 billion investment in energy security.
But the SPR is only one of three energy reserves controlled by the US government. The government also has two other reserves that you may not have heard of.
Northeast Home Heating Oil Reserve
The Northeast Home Heating Oil Reserve is a 2-million barrel supply of emergency fuel oil for homes and businesses in the northeast United States.
The Heating Oil Reserve was established in 2000 as an "emergency buffer" that can supplement commercial fuel supplies should the heavily oil-dependent region be hit by a severe heating oil supply disruption.
The intent was to create a buffer large enough to allow commercial companies to compensate for interruptions in supply or severe winter weather, but not so large as to dissuade suppliers from responding to increasing prices as a sign that more supply is needed.
Of the 7.7 million households in the United States that use heating oil to heat their homes, 5.3 million households (69%) reside in the Northeast region of the country.
The two million barrels of heating oil are stored at commercial tank farms throughout in New Haven, Connecticut and in Woodbridge, New Jersey, on the New York Harbor.
Heating Oil Storage Terminals
Terminal Location Inventory
Amerada Hess Corp. Woodbridge, NJ 1,000,000 bbls
Magellan Midstream Partners, L.P. New Haven, CT 500,000 bbls
Motiva Enterprises New Haven, CT 250,000 bbls
Motiva Enterprises Providence, RI 250,000 bbls
Naval Petroleum and Oil Shale Reserves
Since the early 1900s, the Naval Petroleum Reserves program has controlled oil bearing lands owned by the U.S. Government.
The lands were intended to provide U.S. naval vessels with an assured source of fuel. The Naval Petroleum Reserves operated once three major oil fields located in California and Wyoming.
The Government also held oil shale lands in Utah and Colorado that were opened to development during the 1980s as an alternate source of fossil fuels.
Currently DOE retains oversight of two Naval Petroleum Reserve properties and one technology testing center:
The Teapot Dome Naval Petroleum Reserve #3 in Wyoming
This reserve is a small stripper well oil field that produces about 438 barrels of crude oil and 1,400 gallons of natural gas liquids per day from 540 wells in nine geological formations, earning approximately $5 million per year in revenues.
The Buena Vista Hills Naval Petroleum Reserve #2 in California
Of the 50 tracts owned by the government at the Buena Vista Hills reserve, nearly 90% are leased by private oil companies. Royalty payments are deposited in the U.S. Treasury.
Rocky Mountain Oilfield Testing Center (RMOTC) at NPR-3.
The Rocky Mountain Oilfield Testing Center is the only oil field testing center in the United States. The center identifies and resolves technical and environmental issues associated with the production, distribution and use of the nation’s energy resources.
We’re Not out of the Hurricane Woods Yet
Experts say that the hurricane season is far from over. On Friday hurricane researchers said that they expect still more storms over the next two months.
The Colorado State University hurricane forecast team said there is a 43% chance that an intense hurricane will hit the U.S. coast in September, and a 15% chance in October.
The forecasters predicted that there would be another five named storms for September, traditionally the most active month for hurricanes.
The Atlantic hurricane season already has seen 13 named storms, including Maria, which formed on Friday. Four of these storms became hurricanes. The 50-year average per season from 1950 to 2000 is 9.6 named storms, 5.9 hurricanes and 2.3 intense hurricanes.
Another hurricane scare and it seems that oil futures will likely break the $75 mark. Another Katrina and you might see $4 gas this month.
– Luke Burgess
