The US Government Makes Plans to Sell High, Buy Low
Following US president Joe Biden’s announcement in March of the largest ever release of oil from the Strategic Petroleum Reserve (SPR)—a move that will add 180 million barrels to the market over the next six months—the Department of Energy (DOE) this week announced a plan to refill the SPR.
Specifically, the buyback process will start taking bids this fall, with expected delivery in “future years.” Importantly, crude purchases for the SPR refill will be conducted via a “competitive, fixed-price bid process,” rather than through the existing index-pricing model, one that adjusts final crude sale prices based on index prices at the time of delivery. What does this mean, in practice? The DOE will buy what are effectively futures contracts: It will lock in lower prices now for delivery later, therefore eliminating the guesswork around how much it will cost to refill the SPR – all while encouraging more production in the near term by giving producers a clearer idea of how much demand to expect, at what price. The big looming question: Can Washington deploy the other carrots necessary to encourage production, all along the energy value chain?
European Rare Earths for European Car Parts (Kind Of)
The German auto parts maker Schaeffler last month signed a raw materials deal to secure rare earth oxides from Norwegian company REEtec in order to make permanent magnets for EV motors. This is reportedly the first deal by a European carmaker to source rare earths from Europe. It is being lauded as a pioneering, concrete step in the bloc’s efforts to reduce reliance on China.
That said, it would certainly be a stretch to describe this as a fully European supply chain: The company boasts advanced separation technology but is not a rare earths miner. It sources rare earth carbonates from Canada’s Vital Metals, then processes those into oxides for sale to Schaeffler. But for all the caveats, this supports the story we’re seeing in lithium: With the EV revolution throwing critical mineral inputs into the spotlight, automakers are increasingly investing in vertically integrated, or at least vertically coordinated, value chains.
Not One to Waste a Crisis, Malaysia Abhors a Cooking Oil Vacuum
Last week, Indonesia implemented a ban on exports of crude and refined palm oil, threatening to further disrupt global cooking oil supply, already thrown into disarray by Russia’s invasion of Ukraine (Russia and Ukraine are the world’s top two exporters of sunflower oil). Now, Malaysia has announced that it intends to step into the gap. It aims to leverage the global cooking oil shortage and political tensions in Europe to expand the country’s global palm oil market share, and claim what it sees a wide and lucrative market opportunity. As the Malaysian commodities minister put it bluntly, the government “will not want to waste a good crisis.” Malaysian crude palm oil prices are up 45% this year, though they have retreated slightly this week on hopes of a production rebound and a potential easing of the Indonesian ban.