Tapping Strategic Oil Reserves Fails to Fix Crude Price
In recent weeks, the International Energy Agency (IEA) decided to release 60 million barrels of member states’ oil reserves into the world market in what it called an effort to ease high oil prices. 30 million barrels came from the U.S. strategic oil reserves. Two weeks later, very little has changed in the price of oil; but looking back a few months prior reveals the likely ulterior motive to releasing the reserves.
Prices for oil still hover around $100 dollars per barrel, and the attempt by the IEA and the Obama administration to somehow fix international oil prices with a measly 60 million barrels of oil is something we would expect the best and the brightest in the world (our leaders) to realize wouldn’t work.
In fact, it appears that China—not even an IEA member state—may have benefited the most from the flooding of reserves into the market. "China now accounts for 20.3 percent of global demand compared to only 19 percent for the United States. So although the American consumer paid the bill for the entire release of oil, 81 percent of our largess benefited foreign countries,” says David Marotta, president of Marotta Wealth Management.
So why would the people responsible for managing the world’s vital energy reserves have been so blind to the fact that releasing 60 million barrels of oil would do nothing to fix price? Perhaps they were well aware, and, just like big oil does when prices are high, planned to maximize profit off of the sale of the strategic reserves.
The strategic reserves can be viewed as an investment of sorts. The oil reserves have been filled over time while prices were relatively low. It was only about 15 years ago that prices at the pump were barely even $1.00. Now, we face $4.00 a gallon, and prices akin to that or higher are probably to be the norm from here on out. Essentially we’re looking at an investment—made by taxpayers—that has dramatically increased in value. So selling off the reserves at a time of high cost per barrel should yield a high return on investment for the taxpayer.
In early May 2011, a group of U.S. Senate Democrats proposed selling the reserves, not necessarily to ease prices at the pump, but rather, to use the high profits to invest in advancing electric vehicles. Just a month-and-a-half later, the reserves are tapped.
So why try and convince the world that releasing reserves would in some magical way drive down price? Didn’t the IEA and U.S. government know that world consumption surpasses 60 million barrels in just a single day (roughly 84 million)? There is no way that the top analysts in the world advising these government leaders didn’t know that releasing reserves wouldn’t do anything… except generate a huge profit.
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In April 2011, Daniel Weiss, a senior fellow and director of climate strategy at the Center for American Progress, even recommended that 30 million barrels (coincidence?) of oil from the strategic reserves be sold. "It would generate over $3 billion," he said. "We could invest that money in making transit much more accessible and affordable for people."
Again… why the front? Why convince the media that the reserves are going to bring down prices when there is clear evidence for an ulterior motive? Oil companies made a huge fuss over the IEA’s decision to release the reserves, when it actually barely affected their profits at all. Did they too know that the money was going to investments in the very technology that could someday put them out of business (i.e., electric cars)? Let’s just hope that the government actually puts that money into appropriate investments. Better yet, why not use that $3 billion in profit that they’re keeping so hush-hush about to subsidize actual prices at the pump. If the U.S. consumes roughly 21 million barrels per day at an average cost of $100 per barrel, then $3 billion could provide every driver in America with two weeks of free gasoline (not figuring in oil for plastics, rubber and other uses). I’m no mathematician… just a guy who doesn’t like being lied to and can’t afford gasoline.
Ofwat allows retailers to raise prices from April
Retailers can recover a portion of excess bad debt by temporarily increasing prices from April 2022, according to an Ofwat statement.
The regulator confirmed its view that levels of bad debt costs across the business retail market are exceeding 2% of non-household revenue, thereby allowing "a temporary increase" in the maximum prices. Adjustments to price caps will apply for a minimum of two years to reduce the step changes in price that customers might experience.
Measures introduced since March 2020 to contain the spread of Covid-19 could lead to retailers facing higher levels of customer bad debt. Retailers’ abilities to respond to this are expected to be constrained by Ofwat strengthening protections for non-household customers during Covid-19 and the presence of price caps.
In April last year, Ofwat committed to provide additional regulatory protection if bad debt costs across the market exceeded 2% of non-household revenue.
Georgina Mills, Business Retail Market Director at Ofwat said: “These decisions aim to protect the interests of non-household customers in the short and longer term, including from the risk of systemic Retailer failure as the business retail market continues to feel the impacts of COVID-19. By implementing market-wide adjustments to price caps, we aim to minimise any additional costs for customers in the shorter term by promoting efficiency and supporting competition.”
There are also three areas where Ofwat has not reached definitive conclusions and is seeking further evidence and views from stakeholders:
- Pooling excess bad debt costs – Ofwat proposes that the recovery of excess bad debt costs is pooled across all non-household customers, via a uniform uplift to price caps.
- Keeping open the option of not pursuing a true up – For example if outturn bad debt costs are not materially higher than the 2% threshold.
- Undertaking the true up – If a 'true up' is required, Ofwat has set out how it expects this to work in practice.
Further consultation on the proposed adjustments to REC price caps can be expected by December.
"While it’s great that regulators are helping the industry deal with bad debt in the wake of the pandemic, raising prices only treats the symptoms. Instead, water companies should head upstream, using customer data to identify and rectify the causes of bad debt, stop it at source and help prevent it from occurring in the first place," she said.
"While recouping costs is a must, water companies shouldn’t just rely on the regulator. Data can help companies segment customers, identify and assist customers that are struggling financially, avoiding penalising the entire customer in tackling the cause of the issue."
United Utilities picks up pipeline award
A race-against-time plumbing job to connect four huge water pipes into the large Haweswater Aqueduct in Cumbria saw United Utilities awarded Utility Project of the Year by Pipeline Industries Guild.
The Hallbank project, near Kendal, was completed within a tight eight-day deadline, in a storm and during the second COVID lockdown last November – and with three hours to spare. Principal construction manager John Dawson said the project helped boost the resilience of water supplies across the North West.
“I think what made us stand out was the scale, the use of future technology and the fact that we were really just one team, working collaboratively for a common goal," he said.
Camus Energy secures $16m funding
Camus Energy, which provides advanced grid management technology, has secured $16 million in a Series A round, led by Park West Asset Management and joined by Congruent Ventures, Wave Capital and other investors, including an investor-owned utility. Camus will leverage the operating capital to expand its grid management software platform to meet growing demand from utilities across North America.
As local utilities look to save money and increase their use of clean energy by tapping into low-cost and low-carbon local resources, Camus' grid management platform provides connectivity between the utility's operations team, its grid-connected equipment and customer devices.