US oil reserves: tuning fork of the global hydrocarbon market

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Strategic oil reserves in the US will last for 12 years of a quiet life at constant consumption rates. Is it a lot or a little? And why is the level of these stocks in the reports constantly changing? Who evaluates volumes and how? Why are many people in the world interested in this data, including financiers? Let's try to figure it out.

S alt Domes: Latest Storage Technology

Most storage facilities are located in oil-producing regions: Texas, Louisiana and along the Gulf of Mexico, close to oil refining centers. Strategic oil reserves in the United States are stored in the most unique industrial facilities located underground. These are completely new storage technologies, in which about four billion dollars have been invested.

These are huge artificial underground cavities formed in place of natural s alt domes. Through these domes, having previously drilled them, they pumped a large amount of water to dissolve the s alt. The depth of some storage facilities reaches one kilometer, and the volumes are millionscubic meters. All accompanied by the latest pipeline systems and tankers to transport oil.

How it all started

The US oil reserve system was organized after the famous 1973 oil crisis. The arrangement of oil pipelines simplifies the pumping of oil in both directions: both to and from storage facilities. These stocks were very useful to the United States during the Gulf War in 1991. It is precisely for such situations that the reserve oil system was created: during sharp jumps in hydrocarbon prices or a sharp increase in gasoline consumption. Against the backdrop of hostilities, this always happens.

As for the volume of hydrocarbon production, the United States has recently moved to second place in the world after Saudi Arabia, pushing Russia to third.

Store or sell?

In 2015, the US Senate passed a fateful decision in the form of a new bill to sell one hundred million barrels of reserve oil during 2018-2025 to raise $9 billion from the sale. This amount was budgeted to finance new logistics projects related to the transport system.

Crude oil inventories are closely watched by self-respecting consulting agencies around the world, because the reserve stocks ratio matters for financial markets. The dependence of the price of oil on the level of reserves is as follows: the smaller the volume of US reserves, the more expensive oil. Data on US oil reserves are published monthly, and formstheir Energy Information Administration.

Technology for monitoring oil reserves in the US is surprisingly primitive and gives approximate numbers. The fact is that the agency only investigates companies that store at least 500 barrels of crude oil, that is, it only deals with large players in the American oil field. And there are enough smaller players in the USA. Such collisions lead to an underestimation of the actual reserves of crude oil. Nevertheless, the reserve oil indicator is a valuable and reliable indicator of the level of demand and oil prices, since it can be tracked in dynamics (which, in fact, everyone does).

On the question of how much oil is available in the US at the moment, no one can give an exact answer. Inventory is a figure that changes frequently and quickly. Storage facilities are emptied, for example, more during the summer: if about 2-3 million barrels a week are pumped out in the spring, then in the middle of summer this volume reaches 6-7 million barrels over the same period.

Plays a role and oil production. There are occasional dips in stocks, which also pushes inventory levels down.

Collapse or stability

Strategic reserves of crude oil in the country's reserve storage facilities in the United States will last only five days. But they also pumped commercial oil, the volumes of which are about one and a half times less than the strategic ones.

About the size of oil reserves in the United States like to speculate in a variety of information sources. Favorite thing is to predict the imminent collapse of the systemreserve oil reserves (the reasons given are very different).

What is clear is that all indicators related to oil reserves in the US and in the world are extremely volatile. But it's probably too early to talk about the collapse. The fact is that, despite the volatility of the coefficients of cost and demand for oil in the world, the volume of total reserves of petroleum products has not changed by more than 10% over the past twenty-five years. It is approximately one billion seven hundred million barrels. You can call it true stability.

Shale Revolution

USA is the only country where the shale revolution has truly taken place. It began in 2002 when US shale oil reserves were confirmed and fracking was first used in horizontal drilling. As is often the case with new breakthrough technologies, expectations from its use were at one time significantly overestimated. This led to serious financial losses and discredit of shale mining technology as a whole.

High production costs due to complex technology is not the biggest problem with shale oil. Much more serious is the fact that a large amount of fresh water is spent for its extraction. There are other negative environmental nuances.

In many countries, shale oil is not produced, despite its large reserves. The reason is most often the lack of fresh water, sometimes the unsuitable parameters of shale deposits. In Poland, for example, billions of dollars have been invested in the construction of drilling rigs. Now none ofsettings are invalid.

In the US, shale oil reserves and ever-improving production technologies led to an investment renaissance in the oil industry in 2018. Investor confidence is restored. Commercial oil reserves have increased by an order of magnitude. Economists have very optimistic expectations.

Today, the state and volume of US oil reserves remains one of the most sensitive tuning forks for the state of the oil market as a whole.