Tag Archives: white house

U.S. Plans to Sell Down Strategic Oil Reserve to Raise Cash

Bloomberg, Oct 27, 2015

Gas station worker Bill Skinner poses holding a gas nozzle Wednesday, March 9, 2011, in San Diego. Gas pump prices continued to climb, reaching a national average of $3.524 for a gallon of regular on Wednesday, according to AAA, Wright Express and the Oil Price Information Service. (AP Photo/Gregory Bull)

* White House to sell 58 million barrels from 2018 to 2025
* Sale comes as China and India build their strategic reserves

The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a budget deal reached on Monday night by the White House and top lawmakers from both parties.

The proposed sale, included in a bill posted on the White House website, equates to more than 8 percent of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period. The proceeds will be “deposited into the general fund of the Treasury,” according to the bill.

The sale is the second time the U.S. has raised cash from the reserve, created as a counter-balance to the power of Arab producers after the first oil crisis of 1973-74. The U.S. may sell also additional barrels to cover a $2 billion program from 2017 to 2020 to modernize the strategic reserve, including building new pipelines.

The White House on Tuesday urged lawmakers to support the budget deal, including the proposed partial sale of the SPR, saying it was “a responsible agreement that is paid for in a balanced way.”

Average Prices

Supporters of the sale argue the U.S. doesn’t require such a big emergency reserve as rising domestic production on the back of the shale boom offsets the need for imports. Critics, including oil analysts and former U.S. energy officials, say using the underground reserve as a piggy bank makes it less effective in meeting its intended purpose: combating a “severe energy disruption.” What’s more, the government would be selling at a time when oil is unlikely to have recovered from its slump over the past 18 months.

The Energy Department, which oversees the reserve, says on average the U.S. paid about $29.70 a barrel for the oil. But after adjusting for inflation and other items, the average cost rises to $74 a barrel, according to ClearView Energy Partners, a Washington-based energy research firm. On Tuesday, West Texas Intermediate, the U.S. oil benchmark, traded at less than $44 a barrel.

At current prices, the extra sales to fund the modernization of the strategic reserve would be equal to 45 million barrels and bring the draw-down to almost 15 percent of the total.

China Reserves

The draft bill states that “the age and condition” of the reserve “have diminished its value” as an energy-security asset, requiring its modernization. “Global oil markets and the location and amount of United States oil production and refining capacity have dramatically changed in the 40 years since the establishment of the Strategic Petroleum Reserve,” it said.

The sale comes as countries including China and India build their own reserves, buying crude in the market to fill up huge tank facilities. The International Energy Agency estimates that China has already stockpiled 200 million barrels and will add nearly 20 million more this year. Beijing plans to increase the size of its reserve to 500 million by 2020. Germany, Japan, South Korea, France, Spain, Italy and other big importers also have their own strategic oil reserves.

Washington has released crude from the strategic reserve three times in supply emergencies: in 1991 during the Gulf War to liberate Kuwait from Iraq, in 2005 after hurricane Katrina crippled Gulf of Mexico production, and in 2011 after the war in Libya cut supplies. Between 1996 and 1997, Washington also sold 28 million barrels to reduce the federal deficit.

The U.S. imported 9.5 million barrels of crude a day in July — the latest monthly data available — down 35 percent from a record of 14.7 million in August 2006.

The Bipartisan Budget Act of 2015 will extend the government’s borrowing authority until March 2017 and also include a two-year deal on spending, party aides said.

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Central Bankers Turning Less Market-Friendly

Bloomberg, Jun 17, 2015

The Bank of England.

Some things seem permanent. Greece is fighting for a bailout. A Bush and a Clinton are running for the White House. FIFA is plagued by scandal.

But for those who track the world’s central banks, change is afoot.

Having soothed investors for the past seven years with low interest rates, bond-buying and other interventions aimed at shoring up weak economies, monetary policy makers are slowly stepping out of markets in a variety of ways.

That leaves investors facing renewed bouts of the volatility which marked recent weeks. A record number of investors told Bank of America Merrill Lynch this month that they have taken out protection against falling stocks over the next three months.

“2015 will go down as the year when major central banks hit an inflection point in their willingness to distort and manipulate markets,” said Alan Ruskin, global head of Group of 10 foreign exchange at Deutsche Bank AG in New York. “This mix of overt and subtle withdrawal of market support is a key macro driver of recent increased volatility.”

Behind the switch in stance is the suspicion that markets risk becoming distorted and overly-reliant on policy makers for direction and need weaning off. If the price is a bit of turbulent trading now then so be it.

‘Destabilizing Disequilibria’

There may be a “strategy to accept higher volatility rather than risk even greater shocks further down the road by allowing potentially destabilizing disequilibria to build further,” said Michala Marcussen, global head of economics at Societe Generale SA in London.

The first to implement a major policy shift was the Swiss National Bank, which rocked markets in January by unexpectedly scrapping its three-year policy of capping the franc at 1.20 per euro. The currency is now around 1.05.

Having forced bond yields down and often into negative territory with a 1.1 trillion euro ($1.2 trillion) quantitative-easing program, European Central Bank President Mario Draghi is now responding to a sell-off in bonds by telling markets to get used to more volatility and warning low interest rates “may increase the financial stability risk.”

The average yield across the euro region climbed to 1.08 percent on Monday, BofA Merrill Lynch indexes show. That’s more than double a record low of 0.425 percent, reached just three months ago.

Fed Meeting

As for the Bank of Japan, Governor Haruhiko Kuroda last week questioned the yen’s slide to a 13-year low that his stimulus helped facilitate, by saying the currency “is unlikely to weaken further in real effective turns.” While he said on Tuesday that comment wasn’t aimed at influencing the exchange rate, the yen is still higher than a week ago.

Wednesday is the turn of Federal Reserve Chair Janet Yellen to talk after U.S. policy makers convene in Washington. Haunted by the taper tantrum of 2013, Yellen is nevertheless still trying to pave the way to the first U.S. interest rate increase since 2006, potentially as soon as September. Sounding the alert to investors, she’s already dropped assurances that rates will stay low and said both stocks and bonds are richly valued.

“Yellen has also warned on the topic of financial stability,” said Marcussen. “Indeed, not raising rates also carries risks.”

‘Abnormally Loose’

Not all are concerned central banks are turning their backs on markets. Even as they warned the risk of an equity bubble is as high as 70 percent, Credit Suisse Group AG strategists said in a report last week that policy will remain “abnormally loose.”

The ECB and BOJ are still purchasing bonds and authorities in New Zealand and South Korea last week cut rates even at the potential price of asset-price growth. The Fed is signaling that when it does increase borrowing costs, it will do so gradually.

Still, investors may want to heed last week’s warning from Bank of England Governor Mark Carney if they continue betting on central banks always running to the rescue.

“The possibility of unpredictable changes in market liquidity poses a clear risk to financial stability, particularly when some market participants take liquidity for granted and crowd into trades in anticipation of central bank action,” he said.

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What Obama’s trade deal (likely) means for American jobs

CNN Money, Jun 12, 2015

What would President Obama’s trade deal do to my job?

That’s really what all the fuss is about on various trade agreements that President Obama is pushing.

The biggest deal of them all is known as the Trans-Pacific Partnership (TPP for short). It would reduce trade barriers between 12 countries– U.S., Japan, Vietnam, Mexico to name a few — that account for 40% of the world’s economy.

 

1. What’s the debate? The White House and Republican leaders say that’s great news for American workers. It would make it easier for millions of people in other nations to buy U.S. goods, which should create jobs.

“We’re going to see unprecedented growth in the middle class in the Asia Pacific from 570 million [in the] middle class to 3.2 billion in just the next 15 years,” Commerce Secretary Penny Pritzker told CNNMoney.

But Democrats and unions say history hasn’t shown that free trade is all that beneficial to workers at home. A deal like TPP would just make it easier for businesses to move jobs elsewhere, they argue.

“This trade agreement would continue the race to the bottom for American workers,” said Senator Bernie Sanders, a Democratic presidential candidate.

2. Who’s right? It’s difficult to answer that because TPP is being negotiated mostly in secret. You can’t just go read through the document like you can for most pieces of legislation.

On Friday, the House was supposed to vote on whether to give the president “fast track” authority, but in a big defeat for Obama, House Democrats defeated a key part of the bill. The issue is likely to come back for a vote next week.

If passed, the Obama administration would be able to negotiate and sign various trade deals — like TPP — with little legislative involvement. It would almost certainly mean that TPP would get done, at least in some form.

Here’s a look at what all this means for your job — and your neighbor’s.

3. What about my job? Workers in the auto, agricultural and energy industries likely have the most to gain. America’s top exports right now are cars, gas and planes and other spacecraft. Reducing trade barriers should make those industries thrive even more.

On the agricultural side, products like pork are in high demand elsewhere in the world. The U.S. could potentially set up and fill that void. But critics of the deal argue that workers for larger companies that have a global reach already will be in a better position to benefit than workers at smaller businesses.

The biggest question mark is what will happen to other manufacturing and service jobs. Nike, for example, has said it would create 10,000 new engineering and manufacturing jobs in the U.S. if TPP happens.

But economist Peter Morici of the University of Maryland calls it “simply a bad deal for ordinary Americans” because of “downward pressures on wages and worsened income inequality,” in a Washington Times op-ed. He says America’s free trade agreement with South Korea killed about 25,000 jobs, driving wages down and worsening income inequality.

4. Who profits from the deal? One of the most outspoken supporters of TPP is the U.S. Chamber of Commerce, the main lobbying group for big business. As the White House points out, exports have been a key driver of economic growth during the recovery, accounting for about a third of the rebound.

But critics like Democratic Senator Elizabeth Warren question whether anyone beyond big business executives and shareholders will benefit.

“U.S. multinationals, like GE and IBM, would still profit from the TPP by moving production to Asia to advantage labor and other resources made cheaper by manipulated currencies, but ordinary working Americans would face more unfairly advantaged foreign competitors, unemployment and even lower wages,” argues Morici.

5. Better conditions for whom? One of the missing details that the public doesn’t know right now is how many protections are in the TPP deal. The White House says the trade agreement will enforce better labor and environmental practices — at home and abroad.

If done right, it could give the U.S. more teeth to fight back when other countries try to undercut America. For example, the agreement is supposed to provide protection for the intellectual property of U.S. exports, from movies to software to prescription drugs. The White House was also trying to create an assistance program for workers who lose their jobs because of free trade agreements.

But the wording — and enforcement — is key.

“If you’re used to reading these trade agreements, the devil is absolutely in the details,” Thea Lee, the deputy chief of staff for the AFL-CIO, which is spearheading the left’s opposition to the deal, told CNN.

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