The Kennel

Time To Buy Oil?

Todd Sullivan wrote:

> ...There are only so many centers in the U.S. to process the wood into blocks, so we have a finite capacity to supply the
> finished products despite growing demand (there are no plans to expand this capacity anytime soon and as a matter of
> fact, it has not been expanded in over 30 years)....

> ...Iran produces about 14% of the world's oil. We currently have 57 days of total U.S. imports in our reserves. If we import
> from Iran at same percentage as they produce for the world markets, what would their elimination of oil exports do to our
> reserves and how long could we go without? I will use this 14% for the comparison, the actual amount may be more or less
> but there would be vast debate on it were I to "assume" a number. If we released oil from the strategic reserve to eliminate
> the effect of Iran's stoppage, in 406 days the reserves would be empty. Iran's economy would have collapsed well before
> then. Translation? This threat is a non issue....

I agree with your conclusion that it is a good time to be long oil, but first of all, while it is true that there has not been a new refinery built in the USA in 30 years, it is decidedly not true that our refining capacity has not increased in that time. On the contrary, many refineries have been significantly upgraded and if you total the production increases, you will see that we have substantially more refining capacity in the USA than we had in the 1970s, despite the lack of new refineries.

Secondly, while again I agree with your conclusion that Iran is unlikely to withhold oil, if they did the effects would be much more dire than you allow. You are looking at this as if we live in a vacuum and the rest of the world is there for our convenience. In point of fact, everyone else would not all step aside politely so we could continue to import what we want (minus the Iranian portion) with no disruption. Rather, if 14% of production capacity disappeared off the world market, regardless of how much of that impacted oil production we were actually importing - even if it were zero - there would be a mad scramble for the remaining 86% that would swiftly drive the price/barrel up into triple digits for everyone, and possibly provoke a military reaction from some.


Brad Hessel
Manager, The Kennel