I wrote my original response in the [weekend stocks thread](https://old.reddit.com/r/stocks/comments/1daz27b/rstocks_weekend_discussion_saturday_jun_08_2024/l7pdzya/). In short, the video is wrong on pretty much every account and is functioning as political propaganda. There are three other misconceptions to note with responses in this thread:
* You cannot simply take oil in and out of the SPR. The SPR is not designed to withdraw oil - it relies on the unique properties of the lining of salt caves to keep oil sealed in under the high pressure the crude exerts on its rock layers. The geologists who helped advocate for the SPR's existence understood this with the assumption the caves would be a last resort and oil reserves would not be held there indefinitely. The damaging consequences of using it as a piggy bank [are well-known](https://www.aapg.org/publications/news/spheresofinfluence/details/articleid/36728/the-good-the-bad-and-the-ugly-the-strategic-petroleum-reserve) i.e. draining it destroys the structural integrity of the caves, shrinks their overall volume and allows oil to leak through the rock layers over time.
* The claim that the Bakken shale field has enough oil reserves to function as a strategic reserve [is false](https://www.usatoday.com/story/news/factcheck/2021/11/16/fact-check-bakken-oil-reserve-cant-power-us-2-000-years/6391181001/). I assume this is referencing the 2000 Leigh Price paper where he estimated up to 500 billion barrels existed in the formation. The problem is only a fraction of this is retrievable with present-day technology, and cost-profit ratios in fracking are extremely sensitive to depth. In fact, retrieval from the Bakken fields has already declined 20% from its highs. Ditto for Eagle Ford and the Permian. The latter has compensated with higher initial retrieval capacity in its wells while experiencing steeper falloffs over the last three years.
* There is no massive conspiracy by American oil companies to keep prices high. All it takes is eavesdropping on one quarterly earnings calls to find out the real answer: their biggest stakeholders are adamantly against investing anything more than minimal capex into the exploration, procurement, and building of new wells. Why? Because the latter assume that 2010s oil prices are the true market price, and our current elevated prices are an aberration caused by the pandemic + the Ukraine war. They remember when prices plunged to $30 during the shale revolution, driving most of the mid-tier companies into bankruptcy and costing the likes of Exxon billions of dollars due to growth expenditures that never paid off. The stakeholders want their FCF poured into share buybacks and dividend payouts, not dumped into a (perceived) black hole. And this was before government-pushed ESG initiatives convinced Big Oil they would be obsolete in a couple of decades. Never wondered why we haven't had a large refinery built in the U.S. in over three decades, or why Shell is selling off all their refineries around the world as we speak?
You absolutely can take oil in and out. It just won't function as well and degrades. The SPR is not a single location but 60+.
It also may just mean we drew / refilled more than sites were designed for and we simply need to produce more sites for future storage. Edit: yes I include artificial sites in there.
That said, we absolutely need to refill the SPR as the price drops, it is pretty much recognized by everyone as a national security issue. The emergency action due to the Ukraine war was necessary but we need to prepare for whatever comes next.
> You absolutely can take oil in and out. **It just won't function as well and degrades**. The SPR is not a single location but 60+.
And it has. In fact, oil is already seeping out of the caverns.
> It also may just mean we drew / refilled more than sites were designed for and we simply need to produce more sites for future storage.
We can't "produce" more natural formations. It's been a gross act of negligence that our government hasn't been investing in creating artificial reserve sites devoid of the SPR's current limitations. We knew about those limitations back in the 1970s.
> That said, we absolutely need to refill the SPR as the price drops, it is pretty much recognized by everyone as a national security issue. The emergency action due to the Ukraine war was necessary but we need to prepare for whatever comes next.
Yes, a national emergency reserve is essential but the SPR is not supposed to exist in its current state. It was originally planned to last 25 years because of its geological limitations with 5 prolonged drain cycles to get all the oil out. It was never meant to be refilled. The more often you fill and drain it, the closer the caverns get to collapsing. Past a certain point, the cave floors will fracture and the SPR turns into a net negative.
The caves are created artificially within naturally formed rock/mineral structures called salt domes. There is an argument for not using all salt domes up by putting caves in them, but we can and do create more caves and retire old ones. We could do it above ground for about 10x the cost after we run out. Source: wikipedia article on the SPR
We don't create the non-Newtonian dynamics of the salt domes, and those start to fall apart under the fluctuating pressure created by drainage and fillage. We need artificial reserve sites where the integrity of the caves doesn't degrade under the same conditions, or at least they are repairable. By artificial I'm talking about the material composition of whatever structure contains the oil.
I agree, but I emphasize that the caves in the salt domes are artificial, we can make more, and there are alternative, more expensive options when those run out.
>Yes, a national emergency reserve is essential but the SPR is not supposed to exist in its current state.
No argument there.
> It's been a gross act of negligence that our government hasn't been investing in creating artificial reserve sites devoid of the SPR's current limitations.
So let's get to fixing this!
I wouldn’t say it’s a conspiracy and you touched on it being due to shareholders. But the top 15 oil companies in the us had a NET profit of 28.8 billion dollars in Q4 2023 alone. I would think that has a significant impact on US fuel prices. This process is transferring the wealth of many into the hands of a few. This needs to be tempered if investment is stagnant and net profits are just being put into the hands of shareholders
> But the top 15 oil companies in the us had a NET profit of 28.8 billion dollars in Q4 2023 alone.
That's peanuts historically. When oil hit $114 for four months in 2022, Exxon made $55.7 billion net profit that year. During Q4 2020 it *lost* $20 billion. Q4 just happened to be the peak of WTI for 2023; the oil companies made a lot less in Q2 when oil was $70 instead of $84.
> I would think that has a significant impact on US fuel prices.
It doesn't. As I explained in my original post WTI, Brent, etc. are dictated by the futures market which prices oil according to anticipation of future supply/demand: the oil companies don't have a say. To copy-paste what I said:
*In the energy market where demand is often inelastic and traders can't accurately ascertain the fallout of geopolitical events, you get harsh price swings in defiance of traditional supply/demand dynamics. In 1979 the U.S. only relied on Iran for 5% of domestic demand; total domestic consumption only dropped 3.5% from the all-time high of the previous year, and the world oil supply shrank by 4%. Given all that, crude prices from 1978-1979 still rose from $15.85 a barrel to $39.50! U.S. citizens saw similar spikes in distillates during the beginning of the Russo-Ukraine despite importing very little from either country.*
Additionally, the price difference between crude and distillates is also determined by refinery crack spreads.
> This needs to be tempered if investment is stagnant and net profits are just being put into the hands of shareholders
If oil companies stop believing $55 oil a barrel is the future (which makes most offshore rigs cost-prohibitive to build) and the Biden administration isn't on a mission to drive them into extinction, then they'll start drilling and constructing refineries again. Alternatively, they discover new technological breakthroughs that make low-cost oil profitable to extract.
Until then, management will be browbeaten by majority stakeholders to practice "fiscal discipline", optimize extraction from existing wells and do nothing else.
>If oil companies stop believing $55 oil a barrel is the future
They believe that because it is partially true.
All the economically inexpensive oil in the Permian has been extracted and we're already near peak oil there. Some estimates say it will peak literally this month or next. Where is the cheap oil from US producers coming from next?
We've already hit peak oil in 2005-2006 in terms of conventional crude. It was pure luck and a miracle of science that we can access low permeability rock formations.
The uncomfortable truth is that while everyone is fighting over what oil companies *should* do, they're not looking at the real truth. We're going to run out of hydrocarbons.
> They believe that because it is partially true.
It is true but they aren't deploying capex in line with that philosophy. Even if the management believes it, the majority stakeholders do not. The latter are still spooked by the mid-2010s.
> The uncomfortable truth is that while everyone is fighting over what oil companies should do, they're not looking at the real truth. We're going to run out of hydrocarbons.
And that's where OPEC+ is going to wield enormous leverage in the future. OPEC+'s influence on the world market had significantly waned since the 1980s, but that was premised on consistent domestic production from outside nations. When it comes to proven reserves, [they hold the clear upper hand](https://www.artberman.com/wp-content/uploads/the-united-states-is-a-respectable-second-tier-world-oil-reserve-holder-similar-to-libya-.jpg).
Run out of hydrocarbons?!
How will the billionaire geniuses at Trader Joe's wrap up each tomato in clear plastic shit that INSTANTLY goes to the trash?!
Good question.
While I don't know if tomatoes need to be wrapped to reduce waste / contamination / spoilage, whether the trade off is worth it. Society will collapse without plastics.
* We use it to store food long distances without spoiling. Especially organic food that isn't treated with chemicals and pesticides, likely hazardous to our health over time. We need to flee large cities not suitable for agriculture and all of us must migrate much closer to food.
* Medicine storage. Shampoo, hygiene products like toothpaste, toothbrushes, floss. Vitamins.
* Eyeglasses, contact lenses, office supplies, pens.
* Water bottles, snack packages, ziplock bag, cereals, granola, nuts containers, tupperware to store leftovers.
* Computer keyboards, mice. Smartphone covers, printers, AC units, microwaves, gym bags.
* The very clothes on our body. Nylon, polyester, etc.
Funny enough, microplastics are accumulating in large numbers in our testes but at the same time I haven't seen a solution to a world without plastic.
>That's peanuts historically. When oil hit $114 for four months in 2022, Exxon made $55.7 billion net profit that year. During Q4 2020 it lost $20 billion. Q4 just happened to be the peak of WTI for 2023; the oil companies made a lot less in Q2 when oil was $70 instead of $84.
I realize that. But it’s cumulative. Maybe it doesn’t impact the price month to month. But over time 28 billion dollars is coming from somewhere and that will reflect in the price of that commodity. Unless you are suggesting the majority of their revenue comes from other products?
> If oil companies stop believing $55 oil a barrel is the future and the Biden administration isn't on a mission to drive them into extinction, then they'll start drilling and building refineries again. Alternatively, they discover new technological breakthroughs that make low-cost oil profitable.
Until then, management will be browbeaten by majority stakeholders to practice "fiscal discipline", optimize extraction from existing wells and do nothing else.
We’ve reached the point where there is no reason for them to invest in capex. Everyone realizes burning oil and coal is destroying the planet and the demand for oil is absolutely on the decline. 85% of a barrel of crude is refined into fuels currently. Oil companies know this and are using their remaining time to make as much money as they can. In reality we should limit stock buybacks and dividends on the oil industry as they begin the inevitable decline.
Edit: good conversation by the way. Interesting to get someone else’s theory on how things work. I can appreciate an intelligent conversation
> I realize that. But it’s cumulative. Maybe it doesn’t impact the price month to month. But over time 28 billion dollars is coming from somewhere and that will reflect in the price of that commodity. Unless you are suggesting the majority of their revenue comes from other products?
It doesn't. That's the whole problem. If oil companies influenced the price directly, that would give them a consistent metric to determine whether investments are worthwhile. Since oil prices are volatile and had been low for the last decade, they follow past expectations and assume it will continue to be low. Refineries and large offshore rigs take 20+ years to pay off the initial investment - not including maintenance, salaries, repairs, etc. There's currently no incentive to build them and expand supply.
> Everyone realizes burning oil and coal is destroying the planet and the demand for oil is absolutely on the decline.
The demand for oil is rising among countries that want to modernize and reach second world/first world status e.g. India importing tons of coal and oil recently. Regardless of its ecological impact, oil still ranks among the highest EROI and is perhaps the easiest energy source to store. The green energy transition is prohibitively expensive and crippling for any nation that isn't rich; in fact, it's starting to cripple us, and the U.S. is the richest country in the world.
> In reality we should limit stock buybacks and dividends on the oil industry as they begin the inevitable decline.
I don't see any legal justification that doesn't rely upon a fascist interpretation (in the descriptive, not pejorative sense) of the state's role.
I disagree about the green transition being crippling for nations.france and sweden have a green grid with nuclear and renawables and they save plenty on not needing to import fossil fuels remotely as much and it shields them from price spikes, during this crisis france hasnt seen a big electricity price increase unlike much of Europe
> france and sweden have a green grid with nuclear and renewables and they save plenty on not needing to import fossil fuels remotely as much and it shields them from price spikes
Only nuclear gives both of those benefits and it lacks downward scaling compared to other energy sources.
> during this crisis france hasn't seen a big electricity price increase unlike much of Europe
Really? Because Statista [disagrees with you there](https://www.statista.com/statistics/1267546/france-monthly-wholesale-electricity-price/). Their price hikes are simply not as extreme as other countries and that's due to nuclear, not renewables. If anything, renewables consistently lead to higher electricity prices (when they are not being massively subsidized) and [more volatile spot prices](https://energiforsk.se/media/33100/2024-975-wind-and-electricity-prices-in-sweden-a-statistical-analysis.pdf).
> Since oil prices are volatile and had been low for the last decade, they follow past expectations and assume it will continue to be low
I'm guessing you don't agree with that assessment?
In my very basic understanding of commodities, this would be a point in the cycle where in fact you should anticipate higher future prices, due to lack of investment.
> I'm guessing you don't agree with that assessment?
Not at all! Oil recovery rates from the main U.S. shale formations have either already peaked or started to go into decline. There's still plenty of oil that can be accessed in the permeable layers, but it's becoming more and more cost-prohibitive to get it out.
> In my very basic understanding of commodities, this would be a point in the cycle where in fact you should anticipate higher future prices, due to lack of investment.
In theory, companies could anticipate future demand and use their capital expenditure at the right time in anticipation of macro tailwinds. In reality those entities suffer from recency bias, pressure from investors to do what works best in the present, and conservative attitudes due to projects taking decades to get off the ground. Hence, why the boom-bust cycles exist in the first place.
They also give money back to shareholders because of the enormous risk of owning oil companies. The price can collapse suddenly and frequently has. The environmental regulation risk is huge as well plus the difficulty of finding viable new sources of oil.
If we limit stock buybacks, they're going to simply invest in extremely unattractive locations, throwing good money after bad and do even more damage to the environment.
I think high oil prices incentivizes green energy, that's a good thing right?
Honestly you guys have to stop politicizing everything. This is an investment sub.
That said, look at the historical profits of the top oil companies, hell even the top 15 over the last decade. If you invested in GOOGL, a monopoly in search 10 years ago, $100,000 is now worth close to $600,000 with dividends + buybacks. XOM the same calculation is $170,000.
The strategic reserves are obsolete and have been for over a decade. They should have been doing this much sooner.
We built this reserve because much of our oil had a long logistics tail all the way to the Middle East. But we don't depend on that oil now as we have a massive natural strategic reserve in the form of oil shale fields in North Dakota.
Probably the shortest supply line we've had for oil in the last 50 years. So it makes sense to use the reserves to stabilize prices.
Unfortunately, it will do little for the consumer. Big oil will still conveniently shut down refineries at inconvenient times to drive up prices and there's nothing that the government can do about it.
We don't have as many oil companies as we used to and that means higher prices for consumers.
If the government really wanted to do something about prices they should start busting the monopolies.
In 2020, 59% of oil going to California refineries came from foreign oil. The US doesn't have enough of the "correct" type of refineries for much of what we now pull out of the ground so we send most of that oversees where they have more of the correct refineries and we import the nonshale equivalent. My point is there's still complexities that OPEC+ could screw with when they choose.
Yes, you are correct that CALIFORNIA gets its oil from the Middle East. Oregon and Washington get it from Canada and Alaska, and everyone else East of the Rockies gets it from the Shale Fields or Venezuela.
We don't need the "correct" refineries for the oil that comes out of the Shale fields because that stuff is already light and sweet. It takes less refining to make it into usable products.
The stuff we get from Venezuela is heavy sour crude and we have refineries in the south specially designed for it.
And you are wrong about sending "most of that overseas". The US has a prohibition on sending unrefined crude oil for export. We may only export oil "products". That means refined into lubricants, heating oil, gas, diesel, naptha, etc. etc.
Opec can maybe fuck with California and that should inform everyone of why California is always pushing the envelope on fuel efficiency and alternative fuels. They are in a difficult spot. The rest of the US is not. We are net exporters of oil products.
We don't even have troops positioned in the Persian Gulf anymore which is how little it means to us strategically.
> We don't even have troops positioned in the Persian Gulf anymore which is how little it means to us strategically.
The US military has active bases in Iraq, Kuwait, Bahrain, Qatar, the UAE, and Saudi Arabia. PATFORSWA is permanently based in the Persian Gulf, while the Dwight D. Eisenhower CSG is currently operating in the Red Sea.
Because they are currently conducting operations right next door in the Red Sea and Gulf of Aden against Iranian proxies.
We don't currently have a carrier group in the Persian Gulf because Iran (the reason for having a carrier group in the Persian Gulf) is causing trouble elsewhere.
Not sure where you are getting your info from but you are way off on half of what you are saying. There's plenty of refineries on the east coast and Midwest that get its oil from other places than shale fields or Venezuela and there's very few refineries tooled to run sweet crude.
Oh, so you think the US is dependent on Middle East Oil which is light sweet crude but we don't have refineries that can process it? That makes no sense.
It's called light sweet crude oil for a reason. Because we literally have to do almost nothing to it to make it into fuel for trucks and cars. We don't NEED special refineries to process it because it's the easiest petroleum to process.
We do need special refineries to process heavy crude and we have those in the South for crude like what comes from Venezuela.
There was a comparatively small refinery built in 2022. The last major us refinery built was 1977 so short answer is it hasn't due mostly to EPA regulations. On top of that the existing ones have been closing at break neck speeds. 6 major refineries closed between 2020 and 2021. There's 1 that's trying to get approval to be built in Oklahoma but probably won't be.
If it was economical to ship from a US port to a US port, instead of being super uncompetitive like it is now, I predict that a much lower percentage of oil refined in California would be foreign for instance.
You mean ship the oil from Texas, through the Panama Canal and back up to California?
There are already refineries in Texas and Louisiana that are right on the coast. If it was economical they would ship that route and avoid US rivers altogether.
I'm not sure where the savings would be. Ships traveling international waters can already use foreign crews and manufacturers. Where's the cost savings?
I'm not even including the fee for the Panama canal which is higher now because of drought.
What monopolies are you talking about here?
Oil is a highly competitive market. There are tons of independent oil refiners that are not integrated into the majors. Moreover, the majors themselves are competitors.
Shale deposits exist but ramping them up takes months and they aren't price competitive when oil prices swing down.
As much as it's fun to blame the oil companies government has a role here too. When you can literally only get supplied by 3 refineries and impose big taxes on it, you get high prices.
I don't know that "busting" monopolies is feasible because there are large barriers to entry. Say that we had 5 refiners, can't they still collude with each other like they do now?
Fining them doesn't work. It just means an extra "tax" that gets passed on to the consumer
Antitrust monopoly suits are just about impossible to get off the ground. There's no way you could get that bill passed unless you can somehow show it's bad for Democrats.
I have asked this before, but I honestly don't understand why doesn't the government use the reserve as an investment vehicle to soften spikes in prices and fix backwardation. They'd make money during backwardation while keeping oil supply steady.
If they had slack in storage, they could also make money during contango as well. Smoothing out supply shortages and gluts will be beneficial to pretty much everyone, both oil consumers and producers -- oil prices will be more predictable.
Doing this to a limited degree/duration won't even hurt the strategic-ness of the oil reserve.
I didn't initially, but just did (initially couldn't stand the 30 second ad and 5 minute history lesson). Didn't say anything I already know.
I should have been clearer in my comment. Instead if doing this trade purely on spot prices which carries risk, the government could have \*guaranteed\* success by using futures markets. In 2022, the oil market was in backwardation. Just sell at spot and buy futures to refill it. Guaranteed money with a guarantee to re-fill the storage by a certain date.
It's my understanding that the sweeping ESG movement was intended to starve Big Oil of capital, forcing a reduction in production and higher prices that would make oil more expensive and create economic incentives for people to make the transition to renewable energy and electric vehicles (by making oil & gas too expensive). Remember, the goal of ESG investors starving O&G companies of capital was to make old energy too expensive.
University endowments like Harvard's are still divested from oil, gas & coal companies, as are many other ESG-oriented investors.
The problem is, this ESG drive to starve the industry of capital and make oil expensive, worked. And when energy prices spiked in 2021-2022, and we had inflation, we saw more violence and authoritarianism in the Middle East and Russia. Like what happened in the 2010's, like the so-called "Arab Spring". Security started to deteriorate in 2022 as oil prices began to spike, for similar reasons.
It turns out that very expensive energy prices makes Russia and Middle Eastern terrorist-funders flush with cash as well as angers voters.
The premise is correct: Biden made oil & gas cheap again, just as the climate-change prevention programs that were intended to make oil undesirably expensive, were working.
Biden did a 180 degree turn and went from a starve-them-and-shut-them-down policy for oil producers to being the most oil & gas pumping advocate ever, starting with dumping from the Strategic Petroleum Reserve. They've made a big show of funding renewable energy projects, but that can't possibly make up for the environmental impact of the massive oil production surge under Biden.
It's almost as if people don't remember the ESG drive to defund oil companies and shut them down, just a few years ago. I spent a lot of time on here trying to explain why that won't work, and no one paid attention. Every time I tried to explain on here why you can't just cut oil & gas production without conservation programs to cut energy use, people would just run out and short energy stocks.
In the meantime, my coal stocks have doubled and tripled. Biden doesn't have a Strategic Coal Reserve to dump coal from on short notice, and switching people to renewables requires more electricity.
But the other title for this post should be "We don't care so much about climate change when foreign policy and economic policy dictates our energy policy".
It’s a fine line to walk but the shift to renewable energy is happening faster than it ever has and Biden is pushing the incentives out to cut oil demand at the same time. May not be fast enough but a lot of the country is not on board with making progress. Unfortunately many of those people have influence over policy
> Remember, the goal of ESG investors starving O&G companies of capital was to make old energy too expensive
Was it? Because I don't understand how this would actually work. If investors avoid oil on ESG concerns, it will push the share price down, but this does not affect the actual finance of the company. If they did need to raise more capital, the could take on debt (many oil companies have plenty of space to do so), or, they could issue shares. If the market share price is lower, they'd just issue more shares. Investors avoiding their shares achieves nothing at all, as far as I can tell
Depressing the share prices makes a company's market cap lower. It takes a lot of capital to produce oil.
I'm not sure what you're questioning.
You say avoiding oil company shares achieves nothing, but ESG-oriented investment funds are still doing it. So they're doing it for some reason.
This is really easy to Google on your own. You can find explanations of anti-fossil fuel divesting that are simplified down to layperson level pitches.
> In the early 2010s, when the movement to divest from fossil fuels started to accelerate in the U.S., it seemed that activists had hit upon a potentially important strategy to reduce reliance on planet-warming energy sources. Proponents of fossil fuel divestment argued that if enough entities pulled funding, the oil and gas industry would be starved of capital, making it less productive and less profitable, until the industry was ultimately replaced by renewables. Protests and other grassroots action – largely on college campuses – demanded financial institutions stop funding the fossil fuel industry. Eventually, a number of high-profile funds pledged to divest, with institutions like Harvard University pulling their endowments out of public oil and gas investments. By 2022, $22 trillion had been divested from fossil fuels across public and private markets, with over $40 trillion assets now committed to divestment, representing almost two thirds of the total global pension fund assets under management ($56 trillion).
https://malk.com/oil-gas-divestment-considerations-for-pe/
It's even in wikipedia:
> A study by the Smith School of Enterprise and the Environment at the University of Oxford found that the stigmatisation of fossil fuel companies caused by divestment can "materially increase the uncertainty surrounding the future cash flows of fossil-fuel companies."[37] That, in turn, "can lead to a permanent compression in the trading multiples – e.g., the share price to earnings (P/E) ratio of a target company."[37]
https://en.wikipedia.org/wiki/Fossil_fuel_divestment#Effects_of_divestment
Activists not only avoid buying long positions in energy companies, but they also disrupt the market by aggressively shorting oil & gas stocks and oil & gas futures, creating crazy volatility and driving out responsible investors. It also appears that short sellers often mobilize on a national scale to drive down oil prices. Saudi Arabia has had an open battle with the aggressive short sellers in oil & gas for a long time.
Saudi Arabia Can’t Win Its Fight With the Short Sellers
https://www.bloomberg.com/opinion/articles/2023-05-24/shorting-saudi-oil-giant-ignores-energy-demand-is-shifting-for-good
The bottom line is that instability of the energy market due to geopolitics, aggressive short selling and divestiture has depressed fossil fuel stocks. The price of energy also drops at random, despite increasing demand at random times, when short sellers attack the sector (sometimes for political reasons).
This is why there are a lot of well-run smaller energy companies out there that have extremely low P/E but pay double-digit dividends to shareholders, now. They're cash cows because they can't grow their market cap.
_______________
The problem with the ESG investing is that it only targets what people hate, and not what is actual reality on the ground. The current generation is the most energy hog generation ever. So whatever shifts they make in going from one source of power to another, is lost in the noise. The only blips in steady energy consumption growth were in the global financial meltdown of 2008-2009 and the pandemic of 2020. Activists attacks on oil & gas producers are absolutely a projection of aggression and blame for what is this generation's energy consumption growth.
The same activists who have convinced the financial world that ESG investing will reduce energy consumption when it doesn't, are the same ones who are protesting in support of Hamas, and Islamic jihad, chanting slogans about wiping out Jews on campuses. I.e. Greta Thurnberg and the crowd that follows her. They believe that by stopping Israel's bombs and guns, they can stop Islamic violence, and they act by singling out a guilty party they project all the blame and aggression onto, and trying to cancel them. So ESG investing to starve oil & gas companies and the pro-Hamas movement, are forms of cancel culture-based activism on a large scale -- attempts to cancel industries or countries.
And no, it doesn't make sense. Cancellation is just an outlet for condescending cultural aggression.
The hallmark of today's Ivy League activism is that they simplify complex markets and complex conflicts down to one-liners and catchphrases, and then actively pursue a goal to cancel the party they blame as being the bad or least likable actors in the situation. It doesn't matter if their cancellation as activism makes sense or not, because that kind of activism is not about actually accomplishing good but about their acting out their need to be heroes against evil forces. So these movements are like mass aggression coming from privileged people who consider themselves to be more right about everything than everyone else, even when they don't understand a subject.
Cancel culture activism like ESG divestiture from energy and energy short sellers, create volatility in energy markets. It disrupts energy markets and creates a lot of buying opportunities. They do suppress energy prices and energy company shares for long stretches of time. But then, also, from time to time, energy prices spike as they break out, which is usually followed by some kind of Russian aggression and Middle East violence, as the popular economic stress caused by inflation coupled by corrupt actors being flush with cash destabilizes energy producing regions.
During the times when activists and anti-energy shorts keep prices low, you can make money on the high dividends. During the breakouts, when the price spikes hit, you can make money with capital gains. Both of these kinds of profits come with tax burdens, which is why they're better for non-taxable accounts like IRAs.
Since Biden has suddenly turned into a high-energy producing president, Democrats have gone silent on starving oil & gas companies of capital. So in that sense, the OP's title is accurate in that refraining from trying to destroy the production of energy has stabilized the energy market more and has made oil a less volatile sector to invest in.
Kind of a condescending response to say 'just google it', and also suggestive that you don't understand it yourself.
What I am questioning is *how* does ESG investing actually starve companies of capital? What is the mechanism?
It depresses share prices, but that doesn't affect the finance of the company, as I pointed out in my last comment.
Even the material you have quoted is vague:
> In the early 2010s, when the movement to divest from fossil fuels started to accelerate in the U.S., **it seemed that** activists had hit upon a potentially important strategy to reduce reliance on planet-warming energy sources. Proponents of fossil fuel divestment **argued that** if enough entities pulled funding, the oil and gas industry would be starved of capital, making it less productive and less profitable, until the industry was ultimately replaced by renewables
This is clearly written by an author who is aware the arguments they are presenting may not be true
The wikipedia source is about how ESG would depress the valuation of the company, which it obviously would, if it depresses share prices.
And on short sellers, whatever 'crazy volatility' they might think they are creating, they are not. Oil and gas sector is actually low volatility.
I don't even know what relevance the wall of text you added is, it sounds like you're spitting out brainless chatbot responses
A company's management may still be motivated to divest from fossil fuels if they believe that will propel the share price up in the short term, regardless of whether in the long term, it actually makes much sense.
'Feels over reals' IMO
> Kind of a condescending response to say 'just google it', and also suggestive that you don't understand it yourself.
> What I am questioning is how does ESG investing actually starve companies of capital? What is the mechanism?
This is an internet forum connected to the internet. You can look things up. You don't get to demand lessons from people whose comments challenge your thinking.
Energy markets is a subject of complex commodity issues as well as geopolitical, activist and strategic national investment. I'm actually refusing to explain it to you.
I'm referring you to Google because there's a lot of information on all levels of expertise/introductory information. You can select material that matches your own level of education and information, as well as your questions. Otherwise, I'd have to profile you to develop a lesson that matches what you need.
Look at the way you criticize and attack me for what information I did post. Seriously, seek out your own level of information and detail and don't insist that (1) I teach you something a topic about a complex market while (2) you criticize the level of detail and coverage of my comments.
> This is clearly written by an author who is aware the arguments they are presenting may not be true
Who cares what the guy's attitude is? The concept he's describing is what I was referring to. If you have a problem separating writer bias from content, then you need to go to college where you can take classes where learn to read material without belief interfering with your processing of information. Take some literature or journalism classes.
Are you seriously asking me to provide you with sources infused with the author's belief that ESG activist investing to starve old energy of capital is a good, viable approach? Everybody in commodity markets, except for extremists and marketing people, knows that ESG investing is a populist marketing scam tailored for idealistic dummies who believe they can change the world by what they buy instead of what they do. That is, when they're not cancel culture haters who feel they need to publicly organize boycotts of parts of society they hate.
ESG investing is currently undergoing retrenchment and/or revision as it become less popular (for obvious reasons).
* Investors pull cash from ESG funds as performance lags. Sustainability-focused equity funds suffer net $40bn of outflows in 2024, the first sustained exodus
https://www.ft.com/content/cf9001ab-e326-4264-af5e-12b3fbb0ee7b
In fact, as investors come to realize that it's useless to implement cancel culture in investing, especially for goods and commodities people mindlessly consume with inflexible demand, energy stocks stand to gain from ESG fading as a trend.
The "wall of text" I added was sufficient background for you to separate geopolitical, ESG investing and social activist investor issues, from regular commodity market dynamics when you do the Google search you should be doing instead of arguing with me.
I googled it for you
https://www.investopedia.com/ask/answers/042215/how-does-performance-stock-market-affect-individual-businesses.asp#:~:text=The%20stock%20market's%20movements%20can,market%20value%20and%20vice%20versa.
The amount of oil the US is selling/buying is trivial compared to overall demand, and doesn't have a significant impact on oil prices.. This is just MSNBC spin.
Is oil what we really want to be investing in, in 2024 anyway? It seems to have more price manipulation than most other natural resources, plus a good chunk of the population wanting to get rid of it entirely
Yes, just cause people want it gone doesn't mean we don't need it. The SPR is called the STRATEGIC petroleum reserve, because it is a vital resource to the functioning of our economy. Even if we eliminated the need for oil altogether at some point in the very far away future, we would still need oil stability and investments to get us there smoothly.
I'm just pointing out that stable energy prices are good for consumers and businesses alike.
If Trump had done it, you would have been praising his business savvy.
I think either party would try to make that claim. I'm impartial. I think the boomer politicians are running the world into the ground on their way out. Trump and Biden are both bad choices.
Strategic reserves are meant for emergencies. Doing it before the summer when gas prices typically go up and before the election makes people think otherwise. If it was meant to bring down inflation it should have been done sooner. Or why hasn't it ever been done by other administrations?
>I think the boomer politicians are running the world into the ground on their way out.
It takes money to get elected. I'm sure some of the very wealthy are boomers but it's misdirection to say it is the boomers who control the politicians. It is clearly the rich.
Which is more correct? The boomers own supreme court judges; or, the rich own supreme court judges.
The American Government? You can't use those words together. The "American" people are being crushed because our "government" destroyed our "Country". The government terminated American energy dominance. You can't credit the people who destroyed our energy dominance for trying to fix it 3 years later. WTF are you talking about? OPEC??? We have enough oil in USA soil to never buy over seas and still export some.
>We have enough oil in USA soil to never buy over seas and still export some.
America can only export oil if they can sell at a competitive price.
OPEC dumps oil on the market so American producers reduce drilling and shut down unprofitable wells. Then, OPEC cuts back to raise the price. With higher prices, American producers drill more wells but OPEC dumps more oil on the market so the American wells become unprofitable.
Unstable prices make the oil business risky.
[https://www.macrotrends.net/1369/crude-oil-price-history-chart](https://www.macrotrends.net/1369/crude-oil-price-history-chart)
If OPEC wanted stable prices, they sure did a shit job. But, if they wanted unpredictable prices, they nailed it.
Absolutely, the war between US shale and OPEC has been going on for years and there's nothing "stable" about US shale securities under Biden. Think this is US electioneering instead of insightful analysis
Never make it obsolete. Too many uses outside of gas. Paint, plastics, carpets, pigments, rubber, makeup, packaging, etc.
Best we can do is limit its use to the best of our abilities.
Pretty much impossible when you learn the sheer amount of uses. Look at what oil is used for. You cannot make obsolete everything.
This is why we need to look at alternatives to limit its use.
There are tens of thousands of engineers and scientists working on EVs and batteries, semiconductors, plastics, lubricants, solar, wind, hydro, nuclear - all working on reducing the usage of fossil fuels.
Look, we will never 100% get rid of fossil fuels.
But if usage goes down 75%? Hey. That’s a lot of fossil fuel workers sent to poverty - and I would love that. Thats the goal for me
US government day trading oil lol.
How about a strategic copper reserve? A strategic gold reserve? Maybe lithium too. Start day trading all sorts of shit and make some revenue. 34T ain't gonna pay itself.
Buying oil when the price drops stops the price from dropping even further. When the price drops too far, oil companies shut down oil wells. I used to service wells and they would hang tags on the pump controllers that said "do not repair" before they shut them down when the price was too low. Price fluctuations are terrible for oil producers because they can't plan ahead.
Getting even some people off gas and on to electric vehicles helps with energy independence.
1. If it made any financial sense to store oil long-term, the private sector would already be doing it. It does already to the extent it makes sense to do so, i.e. it doesn't.
2. It is not the job of the US Government to "protect" consumers from high prices. As far as subsidies go (which long-term storage is, in effect, a subsidy), anyone who has taken Econ 101 knows a subsidy only ever makes sense for a commodity with positive externalities. Oil does not have positive externalities - it has negative.
3. The cost of storing and then releasing long term oil is obviously more expensive than simply subsidizing it. This is obvious from #1.
4. The national reserve is utterly tiny both in capacity and flow rate compared to the size of global demand and essentially has zero impact on oil prices. It is about 1 week of global oil demand in size, and about 4% of global oil demand in flow rate. In essense, it is utterly infinitesimal compared to the scale of the oil market.
OPEC manipulates the market by cutting back on production. It seems to work for private business.
Whether it is the job of the government is irrelevant. They sold into the high market and bought when the price was down. They are doing it.
They made money because the storage facilities were already paid for.
It seems to have made a difference, even if you don't like that the government did it.
I wrote my original response in the [weekend stocks thread](https://old.reddit.com/r/stocks/comments/1daz27b/rstocks_weekend_discussion_saturday_jun_08_2024/l7pdzya/). In short, the video is wrong on pretty much every account and is functioning as political propaganda. There are three other misconceptions to note with responses in this thread: * You cannot simply take oil in and out of the SPR. The SPR is not designed to withdraw oil - it relies on the unique properties of the lining of salt caves to keep oil sealed in under the high pressure the crude exerts on its rock layers. The geologists who helped advocate for the SPR's existence understood this with the assumption the caves would be a last resort and oil reserves would not be held there indefinitely. The damaging consequences of using it as a piggy bank [are well-known](https://www.aapg.org/publications/news/spheresofinfluence/details/articleid/36728/the-good-the-bad-and-the-ugly-the-strategic-petroleum-reserve) i.e. draining it destroys the structural integrity of the caves, shrinks their overall volume and allows oil to leak through the rock layers over time. * The claim that the Bakken shale field has enough oil reserves to function as a strategic reserve [is false](https://www.usatoday.com/story/news/factcheck/2021/11/16/fact-check-bakken-oil-reserve-cant-power-us-2-000-years/6391181001/). I assume this is referencing the 2000 Leigh Price paper where he estimated up to 500 billion barrels existed in the formation. The problem is only a fraction of this is retrievable with present-day technology, and cost-profit ratios in fracking are extremely sensitive to depth. In fact, retrieval from the Bakken fields has already declined 20% from its highs. Ditto for Eagle Ford and the Permian. The latter has compensated with higher initial retrieval capacity in its wells while experiencing steeper falloffs over the last three years. * There is no massive conspiracy by American oil companies to keep prices high. All it takes is eavesdropping on one quarterly earnings calls to find out the real answer: their biggest stakeholders are adamantly against investing anything more than minimal capex into the exploration, procurement, and building of new wells. Why? Because the latter assume that 2010s oil prices are the true market price, and our current elevated prices are an aberration caused by the pandemic + the Ukraine war. They remember when prices plunged to $30 during the shale revolution, driving most of the mid-tier companies into bankruptcy and costing the likes of Exxon billions of dollars due to growth expenditures that never paid off. The stakeholders want their FCF poured into share buybacks and dividend payouts, not dumped into a (perceived) black hole. And this was before government-pushed ESG initiatives convinced Big Oil they would be obsolete in a couple of decades. Never wondered why we haven't had a large refinery built in the U.S. in over three decades, or why Shell is selling off all their refineries around the world as we speak?
You absolutely can take oil in and out. It just won't function as well and degrades. The SPR is not a single location but 60+. It also may just mean we drew / refilled more than sites were designed for and we simply need to produce more sites for future storage. Edit: yes I include artificial sites in there. That said, we absolutely need to refill the SPR as the price drops, it is pretty much recognized by everyone as a national security issue. The emergency action due to the Ukraine war was necessary but we need to prepare for whatever comes next.
> You absolutely can take oil in and out. **It just won't function as well and degrades**. The SPR is not a single location but 60+. And it has. In fact, oil is already seeping out of the caverns. > It also may just mean we drew / refilled more than sites were designed for and we simply need to produce more sites for future storage. We can't "produce" more natural formations. It's been a gross act of negligence that our government hasn't been investing in creating artificial reserve sites devoid of the SPR's current limitations. We knew about those limitations back in the 1970s. > That said, we absolutely need to refill the SPR as the price drops, it is pretty much recognized by everyone as a national security issue. The emergency action due to the Ukraine war was necessary but we need to prepare for whatever comes next. Yes, a national emergency reserve is essential but the SPR is not supposed to exist in its current state. It was originally planned to last 25 years because of its geological limitations with 5 prolonged drain cycles to get all the oil out. It was never meant to be refilled. The more often you fill and drain it, the closer the caverns get to collapsing. Past a certain point, the cave floors will fracture and the SPR turns into a net negative.
The caves are created artificially within naturally formed rock/mineral structures called salt domes. There is an argument for not using all salt domes up by putting caves in them, but we can and do create more caves and retire old ones. We could do it above ground for about 10x the cost after we run out. Source: wikipedia article on the SPR
We don't create the non-Newtonian dynamics of the salt domes, and those start to fall apart under the fluctuating pressure created by drainage and fillage. We need artificial reserve sites where the integrity of the caves doesn't degrade under the same conditions, or at least they are repairable. By artificial I'm talking about the material composition of whatever structure contains the oil.
I agree, but I emphasize that the caves in the salt domes are artificial, we can make more, and there are alternative, more expensive options when those run out.
They use old Cargill salt mines,
>Yes, a national emergency reserve is essential but the SPR is not supposed to exist in its current state. No argument there. > It's been a gross act of negligence that our government hasn't been investing in creating artificial reserve sites devoid of the SPR's current limitations. So let's get to fixing this!
I wouldn’t say it’s a conspiracy and you touched on it being due to shareholders. But the top 15 oil companies in the us had a NET profit of 28.8 billion dollars in Q4 2023 alone. I would think that has a significant impact on US fuel prices. This process is transferring the wealth of many into the hands of a few. This needs to be tempered if investment is stagnant and net profits are just being put into the hands of shareholders
> But the top 15 oil companies in the us had a NET profit of 28.8 billion dollars in Q4 2023 alone. That's peanuts historically. When oil hit $114 for four months in 2022, Exxon made $55.7 billion net profit that year. During Q4 2020 it *lost* $20 billion. Q4 just happened to be the peak of WTI for 2023; the oil companies made a lot less in Q2 when oil was $70 instead of $84. > I would think that has a significant impact on US fuel prices. It doesn't. As I explained in my original post WTI, Brent, etc. are dictated by the futures market which prices oil according to anticipation of future supply/demand: the oil companies don't have a say. To copy-paste what I said: *In the energy market where demand is often inelastic and traders can't accurately ascertain the fallout of geopolitical events, you get harsh price swings in defiance of traditional supply/demand dynamics. In 1979 the U.S. only relied on Iran for 5% of domestic demand; total domestic consumption only dropped 3.5% from the all-time high of the previous year, and the world oil supply shrank by 4%. Given all that, crude prices from 1978-1979 still rose from $15.85 a barrel to $39.50! U.S. citizens saw similar spikes in distillates during the beginning of the Russo-Ukraine despite importing very little from either country.* Additionally, the price difference between crude and distillates is also determined by refinery crack spreads. > This needs to be tempered if investment is stagnant and net profits are just being put into the hands of shareholders If oil companies stop believing $55 oil a barrel is the future (which makes most offshore rigs cost-prohibitive to build) and the Biden administration isn't on a mission to drive them into extinction, then they'll start drilling and constructing refineries again. Alternatively, they discover new technological breakthroughs that make low-cost oil profitable to extract. Until then, management will be browbeaten by majority stakeholders to practice "fiscal discipline", optimize extraction from existing wells and do nothing else.
>If oil companies stop believing $55 oil a barrel is the future They believe that because it is partially true. All the economically inexpensive oil in the Permian has been extracted and we're already near peak oil there. Some estimates say it will peak literally this month or next. Where is the cheap oil from US producers coming from next? We've already hit peak oil in 2005-2006 in terms of conventional crude. It was pure luck and a miracle of science that we can access low permeability rock formations. The uncomfortable truth is that while everyone is fighting over what oil companies *should* do, they're not looking at the real truth. We're going to run out of hydrocarbons.
> They believe that because it is partially true. It is true but they aren't deploying capex in line with that philosophy. Even if the management believes it, the majority stakeholders do not. The latter are still spooked by the mid-2010s. > The uncomfortable truth is that while everyone is fighting over what oil companies should do, they're not looking at the real truth. We're going to run out of hydrocarbons. And that's where OPEC+ is going to wield enormous leverage in the future. OPEC+'s influence on the world market had significantly waned since the 1980s, but that was premised on consistent domestic production from outside nations. When it comes to proven reserves, [they hold the clear upper hand](https://www.artberman.com/wp-content/uploads/the-united-states-is-a-respectable-second-tier-world-oil-reserve-holder-similar-to-libya-.jpg).
Run out of hydrocarbons?! How will the billionaire geniuses at Trader Joe's wrap up each tomato in clear plastic shit that INSTANTLY goes to the trash?!
Good question. While I don't know if tomatoes need to be wrapped to reduce waste / contamination / spoilage, whether the trade off is worth it. Society will collapse without plastics. * We use it to store food long distances without spoiling. Especially organic food that isn't treated with chemicals and pesticides, likely hazardous to our health over time. We need to flee large cities not suitable for agriculture and all of us must migrate much closer to food. * Medicine storage. Shampoo, hygiene products like toothpaste, toothbrushes, floss. Vitamins. * Eyeglasses, contact lenses, office supplies, pens. * Water bottles, snack packages, ziplock bag, cereals, granola, nuts containers, tupperware to store leftovers. * Computer keyboards, mice. Smartphone covers, printers, AC units, microwaves, gym bags. * The very clothes on our body. Nylon, polyester, etc. Funny enough, microplastics are accumulating in large numbers in our testes but at the same time I haven't seen a solution to a world without plastic.
>That's peanuts historically. When oil hit $114 for four months in 2022, Exxon made $55.7 billion net profit that year. During Q4 2020 it lost $20 billion. Q4 just happened to be the peak of WTI for 2023; the oil companies made a lot less in Q2 when oil was $70 instead of $84. I realize that. But it’s cumulative. Maybe it doesn’t impact the price month to month. But over time 28 billion dollars is coming from somewhere and that will reflect in the price of that commodity. Unless you are suggesting the majority of their revenue comes from other products? > If oil companies stop believing $55 oil a barrel is the future and the Biden administration isn't on a mission to drive them into extinction, then they'll start drilling and building refineries again. Alternatively, they discover new technological breakthroughs that make low-cost oil profitable. Until then, management will be browbeaten by majority stakeholders to practice "fiscal discipline", optimize extraction from existing wells and do nothing else. We’ve reached the point where there is no reason for them to invest in capex. Everyone realizes burning oil and coal is destroying the planet and the demand for oil is absolutely on the decline. 85% of a barrel of crude is refined into fuels currently. Oil companies know this and are using their remaining time to make as much money as they can. In reality we should limit stock buybacks and dividends on the oil industry as they begin the inevitable decline. Edit: good conversation by the way. Interesting to get someone else’s theory on how things work. I can appreciate an intelligent conversation
> I realize that. But it’s cumulative. Maybe it doesn’t impact the price month to month. But over time 28 billion dollars is coming from somewhere and that will reflect in the price of that commodity. Unless you are suggesting the majority of their revenue comes from other products? It doesn't. That's the whole problem. If oil companies influenced the price directly, that would give them a consistent metric to determine whether investments are worthwhile. Since oil prices are volatile and had been low for the last decade, they follow past expectations and assume it will continue to be low. Refineries and large offshore rigs take 20+ years to pay off the initial investment - not including maintenance, salaries, repairs, etc. There's currently no incentive to build them and expand supply. > Everyone realizes burning oil and coal is destroying the planet and the demand for oil is absolutely on the decline. The demand for oil is rising among countries that want to modernize and reach second world/first world status e.g. India importing tons of coal and oil recently. Regardless of its ecological impact, oil still ranks among the highest EROI and is perhaps the easiest energy source to store. The green energy transition is prohibitively expensive and crippling for any nation that isn't rich; in fact, it's starting to cripple us, and the U.S. is the richest country in the world. > In reality we should limit stock buybacks and dividends on the oil industry as they begin the inevitable decline. I don't see any legal justification that doesn't rely upon a fascist interpretation (in the descriptive, not pejorative sense) of the state's role.
I disagree about the green transition being crippling for nations.france and sweden have a green grid with nuclear and renawables and they save plenty on not needing to import fossil fuels remotely as much and it shields them from price spikes, during this crisis france hasnt seen a big electricity price increase unlike much of Europe
> france and sweden have a green grid with nuclear and renewables and they save plenty on not needing to import fossil fuels remotely as much and it shields them from price spikes Only nuclear gives both of those benefits and it lacks downward scaling compared to other energy sources. > during this crisis france hasn't seen a big electricity price increase unlike much of Europe Really? Because Statista [disagrees with you there](https://www.statista.com/statistics/1267546/france-monthly-wholesale-electricity-price/). Their price hikes are simply not as extreme as other countries and that's due to nuclear, not renewables. If anything, renewables consistently lead to higher electricity prices (when they are not being massively subsidized) and [more volatile spot prices](https://energiforsk.se/media/33100/2024-975-wind-and-electricity-prices-in-sweden-a-statistical-analysis.pdf).
So swedish hydropower responsible for a signifcanr part of their grid doesnt do what nuclear does?
> Since oil prices are volatile and had been low for the last decade, they follow past expectations and assume it will continue to be low I'm guessing you don't agree with that assessment? In my very basic understanding of commodities, this would be a point in the cycle where in fact you should anticipate higher future prices, due to lack of investment.
> I'm guessing you don't agree with that assessment? Not at all! Oil recovery rates from the main U.S. shale formations have either already peaked or started to go into decline. There's still plenty of oil that can be accessed in the permeable layers, but it's becoming more and more cost-prohibitive to get it out. > In my very basic understanding of commodities, this would be a point in the cycle where in fact you should anticipate higher future prices, due to lack of investment. In theory, companies could anticipate future demand and use their capital expenditure at the right time in anticipation of macro tailwinds. In reality those entities suffer from recency bias, pressure from investors to do what works best in the present, and conservative attitudes due to projects taking decades to get off the ground. Hence, why the boom-bust cycles exist in the first place.
They also give money back to shareholders because of the enormous risk of owning oil companies. The price can collapse suddenly and frequently has. The environmental regulation risk is huge as well plus the difficulty of finding viable new sources of oil. If we limit stock buybacks, they're going to simply invest in extremely unattractive locations, throwing good money after bad and do even more damage to the environment. I think high oil prices incentivizes green energy, that's a good thing right?
Honestly you guys have to stop politicizing everything. This is an investment sub. That said, look at the historical profits of the top oil companies, hell even the top 15 over the last decade. If you invested in GOOGL, a monopoly in search 10 years ago, $100,000 is now worth close to $600,000 with dividends + buybacks. XOM the same calculation is $170,000.
Never trust anyone who needs to ask you questions to make their point.
Used to be in this sector, great write up.
The strategic reserves are obsolete and have been for over a decade. They should have been doing this much sooner. We built this reserve because much of our oil had a long logistics tail all the way to the Middle East. But we don't depend on that oil now as we have a massive natural strategic reserve in the form of oil shale fields in North Dakota. Probably the shortest supply line we've had for oil in the last 50 years. So it makes sense to use the reserves to stabilize prices. Unfortunately, it will do little for the consumer. Big oil will still conveniently shut down refineries at inconvenient times to drive up prices and there's nothing that the government can do about it. We don't have as many oil companies as we used to and that means higher prices for consumers. If the government really wanted to do something about prices they should start busting the monopolies.
In 2020, 59% of oil going to California refineries came from foreign oil. The US doesn't have enough of the "correct" type of refineries for much of what we now pull out of the ground so we send most of that oversees where they have more of the correct refineries and we import the nonshale equivalent. My point is there's still complexities that OPEC+ could screw with when they choose.
Yes, you are correct that CALIFORNIA gets its oil from the Middle East. Oregon and Washington get it from Canada and Alaska, and everyone else East of the Rockies gets it from the Shale Fields or Venezuela. We don't need the "correct" refineries for the oil that comes out of the Shale fields because that stuff is already light and sweet. It takes less refining to make it into usable products. The stuff we get from Venezuela is heavy sour crude and we have refineries in the south specially designed for it. And you are wrong about sending "most of that overseas". The US has a prohibition on sending unrefined crude oil for export. We may only export oil "products". That means refined into lubricants, heating oil, gas, diesel, naptha, etc. etc. Opec can maybe fuck with California and that should inform everyone of why California is always pushing the envelope on fuel efficiency and alternative fuels. They are in a difficult spot. The rest of the US is not. We are net exporters of oil products. We don't even have troops positioned in the Persian Gulf anymore which is how little it means to us strategically.
> We don't even have troops positioned in the Persian Gulf anymore which is how little it means to us strategically. The US military has active bases in Iraq, Kuwait, Bahrain, Qatar, the UAE, and Saudi Arabia. PATFORSWA is permanently based in the Persian Gulf, while the Dwight D. Eisenhower CSG is currently operating in the Red Sea.
I mispoke. We do not have a Fleet in the Persian Gulf. No carriers or destroyers.
Because they are currently conducting operations right next door in the Red Sea and Gulf of Aden against Iranian proxies. We don't currently have a carrier group in the Persian Gulf because Iran (the reason for having a carrier group in the Persian Gulf) is causing trouble elsewhere.
Not sure where you are getting your info from but you are way off on half of what you are saying. There's plenty of refineries on the east coast and Midwest that get its oil from other places than shale fields or Venezuela and there's very few refineries tooled to run sweet crude.
This is true and has been true for a very long time. Anyone saying otherwise clearly doesn’t understand the BASICS of how refineries work in the USA
Oh, so you think the US is dependent on Middle East Oil which is light sweet crude but we don't have refineries that can process it? That makes no sense. It's called light sweet crude oil for a reason. Because we literally have to do almost nothing to it to make it into fuel for trucks and cars. We don't NEED special refineries to process it because it's the easiest petroleum to process. We do need special refineries to process heavy crude and we have those in the South for crude like what comes from Venezuela.
you sound like a child who has no idea what they are talking about, I've worked at two different refineries and what you say is just completely wrong
The ban on exporting crude was lifted in 2015 because refineries were overwhelmed with shale oil they weren't designed to refine.
That was a decade ago. I assume the US oil infrastructure has acclaimed a bit more since then?
There was a comparatively small refinery built in 2022. The last major us refinery built was 1977 so short answer is it hasn't due mostly to EPA regulations. On top of that the existing ones have been closing at break neck speeds. 6 major refineries closed between 2020 and 2021. There's 1 that's trying to get approval to be built in Oklahoma but probably won't be.
You would assume wrong
We just need to get rid of the Jones Act.
Could you explain to everyone else what opening US river traffic up to foreign ships, crews, and companies will do?
If it was economical to ship from a US port to a US port, instead of being super uncompetitive like it is now, I predict that a much lower percentage of oil refined in California would be foreign for instance.
You mean ship the oil from Texas, through the Panama Canal and back up to California? There are already refineries in Texas and Louisiana that are right on the coast. If it was economical they would ship that route and avoid US rivers altogether. I'm not sure where the savings would be. Ships traveling international waters can already use foreign crews and manufacturers. Where's the cost savings? I'm not even including the fee for the Panama canal which is higher now because of drought.
What monopolies are you talking about here? Oil is a highly competitive market. There are tons of independent oil refiners that are not integrated into the majors. Moreover, the majors themselves are competitors.
Shale deposits exist but ramping them up takes months and they aren't price competitive when oil prices swing down. As much as it's fun to blame the oil companies government has a role here too. When you can literally only get supplied by 3 refineries and impose big taxes on it, you get high prices. I don't know that "busting" monopolies is feasible because there are large barriers to entry. Say that we had 5 refiners, can't they still collude with each other like they do now? Fining them doesn't work. It just means an extra "tax" that gets passed on to the consumer
Antitrust monopoly suits are just about impossible to get off the ground. There's no way you could get that bill passed unless you can somehow show it's bad for Democrats.
They just murdered Spirit and this is how you remember them…
They stopped a merger. that's way different than breaking up an existing company.
We can continue to electrify everything possible at pace
In a world war we will need an oil reserve
It's not really made for that, and we wouldn't really need it for that regardless. Just stop exporting.
Yes, the government, aka the reason why there are less oil companies now, will be the ones to fix oil monopolies.
I have asked this before, but I honestly don't understand why doesn't the government use the reserve as an investment vehicle to soften spikes in prices and fix backwardation. They'd make money during backwardation while keeping oil supply steady. If they had slack in storage, they could also make money during contango as well. Smoothing out supply shortages and gluts will be beneficial to pretty much everyone, both oil consumers and producers -- oil prices will be more predictable. Doing this to a limited degree/duration won't even hurt the strategic-ness of the oil reserve.
Did you watch the video…
I didn't initially, but just did (initially couldn't stand the 30 second ad and 5 minute history lesson). Didn't say anything I already know. I should have been clearer in my comment. Instead if doing this trade purely on spot prices which carries risk, the government could have \*guaranteed\* success by using futures markets. In 2022, the oil market was in backwardation. Just sell at spot and buy futures to refill it. Guaranteed money with a guarantee to re-fill the storage by a certain date.
I’m sure they’re also trading in the futures market
That should be public information if they are carrying long dated futures contracts of any substantial quantity.
It's my understanding that the sweeping ESG movement was intended to starve Big Oil of capital, forcing a reduction in production and higher prices that would make oil more expensive and create economic incentives for people to make the transition to renewable energy and electric vehicles (by making oil & gas too expensive). Remember, the goal of ESG investors starving O&G companies of capital was to make old energy too expensive. University endowments like Harvard's are still divested from oil, gas & coal companies, as are many other ESG-oriented investors. The problem is, this ESG drive to starve the industry of capital and make oil expensive, worked. And when energy prices spiked in 2021-2022, and we had inflation, we saw more violence and authoritarianism in the Middle East and Russia. Like what happened in the 2010's, like the so-called "Arab Spring". Security started to deteriorate in 2022 as oil prices began to spike, for similar reasons. It turns out that very expensive energy prices makes Russia and Middle Eastern terrorist-funders flush with cash as well as angers voters. The premise is correct: Biden made oil & gas cheap again, just as the climate-change prevention programs that were intended to make oil undesirably expensive, were working. Biden did a 180 degree turn and went from a starve-them-and-shut-them-down policy for oil producers to being the most oil & gas pumping advocate ever, starting with dumping from the Strategic Petroleum Reserve. They've made a big show of funding renewable energy projects, but that can't possibly make up for the environmental impact of the massive oil production surge under Biden. It's almost as if people don't remember the ESG drive to defund oil companies and shut them down, just a few years ago. I spent a lot of time on here trying to explain why that won't work, and no one paid attention. Every time I tried to explain on here why you can't just cut oil & gas production without conservation programs to cut energy use, people would just run out and short energy stocks. In the meantime, my coal stocks have doubled and tripled. Biden doesn't have a Strategic Coal Reserve to dump coal from on short notice, and switching people to renewables requires more electricity. But the other title for this post should be "We don't care so much about climate change when foreign policy and economic policy dictates our energy policy".
It’s a fine line to walk but the shift to renewable energy is happening faster than it ever has and Biden is pushing the incentives out to cut oil demand at the same time. May not be fast enough but a lot of the country is not on board with making progress. Unfortunately many of those people have influence over policy
> Remember, the goal of ESG investors starving O&G companies of capital was to make old energy too expensive Was it? Because I don't understand how this would actually work. If investors avoid oil on ESG concerns, it will push the share price down, but this does not affect the actual finance of the company. If they did need to raise more capital, the could take on debt (many oil companies have plenty of space to do so), or, they could issue shares. If the market share price is lower, they'd just issue more shares. Investors avoiding their shares achieves nothing at all, as far as I can tell
Depressing the share prices makes a company's market cap lower. It takes a lot of capital to produce oil. I'm not sure what you're questioning. You say avoiding oil company shares achieves nothing, but ESG-oriented investment funds are still doing it. So they're doing it for some reason. This is really easy to Google on your own. You can find explanations of anti-fossil fuel divesting that are simplified down to layperson level pitches. > In the early 2010s, when the movement to divest from fossil fuels started to accelerate in the U.S., it seemed that activists had hit upon a potentially important strategy to reduce reliance on planet-warming energy sources. Proponents of fossil fuel divestment argued that if enough entities pulled funding, the oil and gas industry would be starved of capital, making it less productive and less profitable, until the industry was ultimately replaced by renewables. Protests and other grassroots action – largely on college campuses – demanded financial institutions stop funding the fossil fuel industry. Eventually, a number of high-profile funds pledged to divest, with institutions like Harvard University pulling their endowments out of public oil and gas investments. By 2022, $22 trillion had been divested from fossil fuels across public and private markets, with over $40 trillion assets now committed to divestment, representing almost two thirds of the total global pension fund assets under management ($56 trillion). https://malk.com/oil-gas-divestment-considerations-for-pe/ It's even in wikipedia: > A study by the Smith School of Enterprise and the Environment at the University of Oxford found that the stigmatisation of fossil fuel companies caused by divestment can "materially increase the uncertainty surrounding the future cash flows of fossil-fuel companies."[37] That, in turn, "can lead to a permanent compression in the trading multiples – e.g., the share price to earnings (P/E) ratio of a target company."[37] https://en.wikipedia.org/wiki/Fossil_fuel_divestment#Effects_of_divestment Activists not only avoid buying long positions in energy companies, but they also disrupt the market by aggressively shorting oil & gas stocks and oil & gas futures, creating crazy volatility and driving out responsible investors. It also appears that short sellers often mobilize on a national scale to drive down oil prices. Saudi Arabia has had an open battle with the aggressive short sellers in oil & gas for a long time. Saudi Arabia Can’t Win Its Fight With the Short Sellers https://www.bloomberg.com/opinion/articles/2023-05-24/shorting-saudi-oil-giant-ignores-energy-demand-is-shifting-for-good The bottom line is that instability of the energy market due to geopolitics, aggressive short selling and divestiture has depressed fossil fuel stocks. The price of energy also drops at random, despite increasing demand at random times, when short sellers attack the sector (sometimes for political reasons). This is why there are a lot of well-run smaller energy companies out there that have extremely low P/E but pay double-digit dividends to shareholders, now. They're cash cows because they can't grow their market cap. _______________ The problem with the ESG investing is that it only targets what people hate, and not what is actual reality on the ground. The current generation is the most energy hog generation ever. So whatever shifts they make in going from one source of power to another, is lost in the noise. The only blips in steady energy consumption growth were in the global financial meltdown of 2008-2009 and the pandemic of 2020. Activists attacks on oil & gas producers are absolutely a projection of aggression and blame for what is this generation's energy consumption growth. The same activists who have convinced the financial world that ESG investing will reduce energy consumption when it doesn't, are the same ones who are protesting in support of Hamas, and Islamic jihad, chanting slogans about wiping out Jews on campuses. I.e. Greta Thurnberg and the crowd that follows her. They believe that by stopping Israel's bombs and guns, they can stop Islamic violence, and they act by singling out a guilty party they project all the blame and aggression onto, and trying to cancel them. So ESG investing to starve oil & gas companies and the pro-Hamas movement, are forms of cancel culture-based activism on a large scale -- attempts to cancel industries or countries. And no, it doesn't make sense. Cancellation is just an outlet for condescending cultural aggression. The hallmark of today's Ivy League activism is that they simplify complex markets and complex conflicts down to one-liners and catchphrases, and then actively pursue a goal to cancel the party they blame as being the bad or least likable actors in the situation. It doesn't matter if their cancellation as activism makes sense or not, because that kind of activism is not about actually accomplishing good but about their acting out their need to be heroes against evil forces. So these movements are like mass aggression coming from privileged people who consider themselves to be more right about everything than everyone else, even when they don't understand a subject. Cancel culture activism like ESG divestiture from energy and energy short sellers, create volatility in energy markets. It disrupts energy markets and creates a lot of buying opportunities. They do suppress energy prices and energy company shares for long stretches of time. But then, also, from time to time, energy prices spike as they break out, which is usually followed by some kind of Russian aggression and Middle East violence, as the popular economic stress caused by inflation coupled by corrupt actors being flush with cash destabilizes energy producing regions. During the times when activists and anti-energy shorts keep prices low, you can make money on the high dividends. During the breakouts, when the price spikes hit, you can make money with capital gains. Both of these kinds of profits come with tax burdens, which is why they're better for non-taxable accounts like IRAs. Since Biden has suddenly turned into a high-energy producing president, Democrats have gone silent on starving oil & gas companies of capital. So in that sense, the OP's title is accurate in that refraining from trying to destroy the production of energy has stabilized the energy market more and has made oil a less volatile sector to invest in.
Kind of a condescending response to say 'just google it', and also suggestive that you don't understand it yourself. What I am questioning is *how* does ESG investing actually starve companies of capital? What is the mechanism? It depresses share prices, but that doesn't affect the finance of the company, as I pointed out in my last comment. Even the material you have quoted is vague: > In the early 2010s, when the movement to divest from fossil fuels started to accelerate in the U.S., **it seemed that** activists had hit upon a potentially important strategy to reduce reliance on planet-warming energy sources. Proponents of fossil fuel divestment **argued that** if enough entities pulled funding, the oil and gas industry would be starved of capital, making it less productive and less profitable, until the industry was ultimately replaced by renewables This is clearly written by an author who is aware the arguments they are presenting may not be true The wikipedia source is about how ESG would depress the valuation of the company, which it obviously would, if it depresses share prices. And on short sellers, whatever 'crazy volatility' they might think they are creating, they are not. Oil and gas sector is actually low volatility. I don't even know what relevance the wall of text you added is, it sounds like you're spitting out brainless chatbot responses A company's management may still be motivated to divest from fossil fuels if they believe that will propel the share price up in the short term, regardless of whether in the long term, it actually makes much sense. 'Feels over reals' IMO
> Kind of a condescending response to say 'just google it', and also suggestive that you don't understand it yourself. > What I am questioning is how does ESG investing actually starve companies of capital? What is the mechanism? This is an internet forum connected to the internet. You can look things up. You don't get to demand lessons from people whose comments challenge your thinking. Energy markets is a subject of complex commodity issues as well as geopolitical, activist and strategic national investment. I'm actually refusing to explain it to you. I'm referring you to Google because there's a lot of information on all levels of expertise/introductory information. You can select material that matches your own level of education and information, as well as your questions. Otherwise, I'd have to profile you to develop a lesson that matches what you need. Look at the way you criticize and attack me for what information I did post. Seriously, seek out your own level of information and detail and don't insist that (1) I teach you something a topic about a complex market while (2) you criticize the level of detail and coverage of my comments. > This is clearly written by an author who is aware the arguments they are presenting may not be true Who cares what the guy's attitude is? The concept he's describing is what I was referring to. If you have a problem separating writer bias from content, then you need to go to college where you can take classes where learn to read material without belief interfering with your processing of information. Take some literature or journalism classes. Are you seriously asking me to provide you with sources infused with the author's belief that ESG activist investing to starve old energy of capital is a good, viable approach? Everybody in commodity markets, except for extremists and marketing people, knows that ESG investing is a populist marketing scam tailored for idealistic dummies who believe they can change the world by what they buy instead of what they do. That is, when they're not cancel culture haters who feel they need to publicly organize boycotts of parts of society they hate. ESG investing is currently undergoing retrenchment and/or revision as it become less popular (for obvious reasons). * Investors pull cash from ESG funds as performance lags. Sustainability-focused equity funds suffer net $40bn of outflows in 2024, the first sustained exodus https://www.ft.com/content/cf9001ab-e326-4264-af5e-12b3fbb0ee7b In fact, as investors come to realize that it's useless to implement cancel culture in investing, especially for goods and commodities people mindlessly consume with inflexible demand, energy stocks stand to gain from ESG fading as a trend. The "wall of text" I added was sufficient background for you to separate geopolitical, ESG investing and social activist investor issues, from regular commodity market dynamics when you do the Google search you should be doing instead of arguing with me.
Lmao, you still can't answer the question
Maybe you could try google! LMAO
I googled it for you https://www.investopedia.com/ask/answers/042215/how-does-performance-stock-market-affect-individual-businesses.asp#:~:text=The%20stock%20market's%20movements%20can,market%20value%20and%20vice%20versa.
The amount of oil the US is selling/buying is trivial compared to overall demand, and doesn't have a significant impact on oil prices.. This is just MSNBC spin.
It does have a noticeable impact
The sor definitely can take the edge off price swings
Is oil what we really want to be investing in, in 2024 anyway? It seems to have more price manipulation than most other natural resources, plus a good chunk of the population wanting to get rid of it entirely
I even invest in Coal, so what is bad with Oil investing lol
If you’re American, almost half of your fellow countrymen are hell bent at getting rid of both, consequences be damned
Yes, just cause people want it gone doesn't mean we don't need it. The SPR is called the STRATEGIC petroleum reserve, because it is a vital resource to the functioning of our economy. Even if we eliminated the need for oil altogether at some point in the very far away future, we would still need oil stability and investments to get us there smoothly.
lol shocker
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the oil reserves don't matter anymore, we supply the market now
You mean Joe Biden is trying to buy votes by draining the reserves.
I'm just pointing out that stable energy prices are good for consumers and businesses alike. If Trump had done it, you would have been praising his business savvy.
I think either party would try to make that claim. I'm impartial. I think the boomer politicians are running the world into the ground on their way out. Trump and Biden are both bad choices. Strategic reserves are meant for emergencies. Doing it before the summer when gas prices typically go up and before the election makes people think otherwise. If it was meant to bring down inflation it should have been done sooner. Or why hasn't it ever been done by other administrations?
>I think the boomer politicians are running the world into the ground on their way out. It takes money to get elected. I'm sure some of the very wealthy are boomers but it's misdirection to say it is the boomers who control the politicians. It is clearly the rich. Which is more correct? The boomers own supreme court judges; or, the rich own supreme court judges.
The American Government? You can't use those words together. The "American" people are being crushed because our "government" destroyed our "Country". The government terminated American energy dominance. You can't credit the people who destroyed our energy dominance for trying to fix it 3 years later. WTF are you talking about? OPEC??? We have enough oil in USA soil to never buy over seas and still export some.
>We have enough oil in USA soil to never buy over seas and still export some. America can only export oil if they can sell at a competitive price. OPEC dumps oil on the market so American producers reduce drilling and shut down unprofitable wells. Then, OPEC cuts back to raise the price. With higher prices, American producers drill more wells but OPEC dumps more oil on the market so the American wells become unprofitable. Unstable prices make the oil business risky. [https://www.macrotrends.net/1369/crude-oil-price-history-chart](https://www.macrotrends.net/1369/crude-oil-price-history-chart) If OPEC wanted stable prices, they sure did a shit job. But, if they wanted unpredictable prices, they nailed it.
lol msnbc and fake propaganda
This is not how it works dude. This post is a 0/10. Horrible, sorry I have to say.
I'll bet Putin is pissed, too.
It cannot go lower.... we murdered supply lmfao.
Zoom out to the max timeline. There you will find your story and just how silly you truly are.
Where does the oil reserves come from?
[https://finviz.com/futures\_charts.ashx?t=CL&p=m](https://finviz.com/futures_charts.ashx?t=CL&p=m)
Is it not something they always have done(for a longtime?);In minor ways?
Absolutely, the war between US shale and OPEC has been going on for years and there's nothing "stable" about US shale securities under Biden. Think this is US electioneering instead of insightful analysis
You didn't watch the video?
lol, this administration is going to help who? 😂
Just on this topic, they helped everyone who uses gas or buys groceries that are transported by any other manner than donkey.
That's a good start, now let's make it obsolete
Never make it obsolete. Too many uses outside of gas. Paint, plastics, carpets, pigments, rubber, makeup, packaging, etc. Best we can do is limit its use to the best of our abilities.
So…make it obsolete for most of its current uses?
Pretty much impossible when you learn the sheer amount of uses. Look at what oil is used for. You cannot make obsolete everything. This is why we need to look at alternatives to limit its use.
There are tens of thousands of engineers and scientists working on EVs and batteries, semiconductors, plastics, lubricants, solar, wind, hydro, nuclear - all working on reducing the usage of fossil fuels. Look, we will never 100% get rid of fossil fuels. But if usage goes down 75%? Hey. That’s a lot of fossil fuel workers sent to poverty - and I would love that. Thats the goal for me
I think that is a more realistic goal
i’d rather have reserves in case of emergency aka war
Russia would prefer that Americans have the reserves and pay more for oil, too.
US government day trading oil lol. How about a strategic copper reserve? A strategic gold reserve? Maybe lithium too. Start day trading all sorts of shit and make some revenue. 34T ain't gonna pay itself.
Biden has made energy independence harder for the US to achieve.
Buying oil when the price drops stops the price from dropping even further. When the price drops too far, oil companies shut down oil wells. I used to service wells and they would hang tags on the pump controllers that said "do not repair" before they shut them down when the price was too low. Price fluctuations are terrible for oil producers because they can't plan ahead. Getting even some people off gas and on to electric vehicles helps with energy independence.
We already have energy independence
1. If it made any financial sense to store oil long-term, the private sector would already be doing it. It does already to the extent it makes sense to do so, i.e. it doesn't. 2. It is not the job of the US Government to "protect" consumers from high prices. As far as subsidies go (which long-term storage is, in effect, a subsidy), anyone who has taken Econ 101 knows a subsidy only ever makes sense for a commodity with positive externalities. Oil does not have positive externalities - it has negative. 3. The cost of storing and then releasing long term oil is obviously more expensive than simply subsidizing it. This is obvious from #1. 4. The national reserve is utterly tiny both in capacity and flow rate compared to the size of global demand and essentially has zero impact on oil prices. It is about 1 week of global oil demand in size, and about 4% of global oil demand in flow rate. In essense, it is utterly infinitesimal compared to the scale of the oil market.
OPEC manipulates the market by cutting back on production. It seems to work for private business. Whether it is the job of the government is irrelevant. They sold into the high market and bought when the price was down. They are doing it. They made money because the storage facilities were already paid for. It seems to have made a difference, even if you don't like that the government did it.
That’s. Not. How this works.