November 17, 2008 at 12:24 am #3312
Time to Fill Up on the Strategic Petroleum Reserve
by: Michael Fitzsimmons November 14, 2008
Gasoline has fallen to $1.99 a gallon here in my neck of the woods. Everyone seems to be really happy about this. However, it will come as no surprise to my faithful readers that I can even find problems with cheap gasoline! Cheap oil and gasoline will simply reinforce the uninformed American public’s opinion that they have an inalienable right to oil which is both plentiful and cheap. Read some of the editorials in the latest financial magazines and you will see that $145/barrel oil and $4.50/gal gasoline have already been long forgotten (it was only 6 months ago).
So what do I propose? Well, at a time when the US government is printing trillions of US dollars to, as Jim Rogers says, “transfer money from the competent (the US tax-payer) to the incompetent (bankers, Wall Streeters, insurance & automotive execs)”, and since the US dollar is strong (?), why not use some of these paper dollars to fill up the Strategic Petroleum Reserve? I mean, if Bush thought buying oil at over $100/barrel was a good idea, it must be a real steal under $60. Besides, the next oil crisis is going to be a real doozy! Don’t believe me? Just look at all the canceled production projects recently as the credit crunch and cheap oil take their toll. Meanwhile, the skeleton-in-the-closet (oil reservoir depletion rates) keeps knocking most mature oil reservoir yields at about a 6% a year clip.
The SPR has a capacity of 725 million barrels and is currently filled to about 700 million barrels. So, the US government should go ahead and turn on the 70,000 barrel per day shipments to the reserve and continue to fill it to the brim. We’re going to need it down the road, you can be sure of that. Even at full capacity, the reserve would only provide roughly a 60 day supply of our foreign oil imports of some 12,000,000 barrels per day. That said, you just know there is going to be a crisis in the Middle East some day soon. Or Russia. Or Venezuela. Or Nigeria. Well, you get the picture.
So, yeah, let’s fill up the SPR and get something for our somehow strong currency. Also, let’s go ahead while oil prices are low and put a $0.02/gallon “green tax” on gasoline with provision that this tax bypass Congress and be spent directly on public works projects (providing employment) to build out the following:
- nat gas cars and trucks
- nat gas refueling stations along the interstate highway system
- a nat gas appliance for garage refueling
- solar and wind projects
- the electric grid to take solar and wind power and transmit it to urban centers
These simple and straightforward initiatives would not only help the recession (will it turn into a depression?) by employing thousands of Americans, they would also have the huge benefit of reducing America’s dependence on foreign oil, and cleaning up the environment at the same time. Long term, these infrastructure plays would pay for themselves many times over, much more so than giving the billionaires on Wall Street and in the banking, insurance, and automotive industries yet more money. I call this socialism for the rich, or, as it should be called, fascism. Where do they put all their billions? They sure aren’t investing in the stock market…perhaps they are buying European municipal bonds.
Meanwhile, use the stock market crash to snap up energy stocks on the cheap. ExxonMobil (XOM), ConocoPhillips (COP), Chevron (CVX), and BP are all screaming buys, even if oil does go to $50/barrel. Chevron just pumped first oil from Blind Faith today. BP’s dividend yield is fantastic and yet the new CEO says the company prefers to raise the dividend as opposed to buying back stock. Exxon, to my extreme regret, does not buy into this strategy and continues to spend shareholder wealth on stock buybacks instead of increasing its dividend. I still own the stock (how can you not?) but boy I’d like to give its management a swift kick in the pants for such a puny dividend on the heels of huge profits, cash flows, and the healthiest balance sheet in the business.
A better play short-term might be the large US natural gas producers. These stocks are ripe for the picking. Note StatOil’s (STO) recent investment in Chesapeake (CHP). It will be very interesting to see what the first big takeover offer is in the energy patch…
Disclosure: The author owns all of the stocks mentioned in this article (XOM, COP, CVX, BP, STO, CHP).
November 17, 2008 at 12:26 am #6452
Here was fairly caustic article on filling up Strategic Reserve but makes some good points.
The Government finally turned off buying for the SPR in May 2008 because crude price was over $100/bbl but no one has bothered to start it up again now that crude is back at reasonable buy ($-52/Bbl and headed $30/Bbl) again for filling barrels pulled out during Hurricane damage to USGC refineries & Platforms.
Don’t you think this would be good followup to push with the government (especially for some reasons mentioned in article)?
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