Just Explain It: What is the Strategic Petroleum Reserve?

Eliminating America's dependency on foreign oil has been a policy goal for at least the last two U.S. Presidents.  According to the International Energy Agency, by 2020,  the U.S. will overtake Saudi Arabia as the world's number one oil producer.
However, there's still some work to do.  The United States Energy Information Administration reported that 45% of the petroleum consumed by the U.S. in 2011 was from foreign countries.   Even though the country is well on its way to becoming self reliant, there's always a chance we could hit a major bump in the road.  The good thing is we have protection.  It's called the Strategic Petroleum Reserve or S.P.R.
So here's how the S.P.R. works:
The reserve was created after the 1973 energy crisis when an Arab oil embargo halted exports to the United States.  As a result, fuel shortages caused disruptions in the U.S. economy.
The reserves are located underground in four man-made salt domes in Texas and Louisiana.  All four locations combined hold a total of 727 million barrels of oil.  The inventory is currently at 695 million barrels.  That's around 80 days of import protection.  It's the largest emergency oil supply in the world -- it's worth about $63 billion.
Only the President has the ability to tap the reserves in case of severe energy supply interruption.  It's happened three times.  Twice within the last decade.  In 2005, President Bush ordered the emergency sale of 11 million barrels when Hurricane Katrina shutdown 25 percent of domestic production.  In 2011, President Obama ordered the release of 30 million barrels to help offset disruptions caused by political upheaval in the Middle East.
Following the release order, the reserve issues a notice of sale to solicit competitive offers.  In the most recent sale involving the Obama administration, the offers resulted in contracts with 15 companies for delivery of 30.6 million barrels of oil.  To put that in context, last year the U.S. consumed almost seven billion barrels of oil — that's 19 million per day -- or about 22% of the world's consumption.
Related Link: Using the Strategic Petroleum Reserve Like a Spigot
The release in 2011 had little effect on the price of gas at the pump.  Consumers paid about 2% less for a week before the prices began to climb again.
Related link: Just Explain It: Why Social Security is Running Out of Money
Did you learn something? Do you have a topic you'd like explained?  Give us your feedback in the comments below or on Twitter using #justexplainit.

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Apple to produce line of Macs in the US next year

NEW YORK (AP) -- Apple CEO Tim Cook says the company will move production of one of its existing lines of Mac computers from China to the United States next year.
Industry watchers said the announcement is both a cunning public-relations move and a harbinger of more manufacturing jobs moving back to the U.S. as wages rise in China.
Cook made the comments in part of an interview taped for NBC's "Rock Center," but aired Thursday morning on "Today" and posted on the network's website.
In a separate interview with Bloomberg Businessweek, he said that the company will spend $100 million in 2013 to move production of the line to the U.S. from China.
"This doesn't mean that Apple will do it ourselves, but we'll be working with people and we'll be investing our money," Cook told Bloomberg.
That suggests the company could be helping one of its Taiwanese manufacturing partners, which run factories in China, to set up production lines in the U.S. devoted to Apple products. Research firm IHS iSuppli noted that both Foxconn Technology Group, which assembles iPhones, and Quanta Computer Inc., which does the same for MacBooks, already have small operations in the U.S.
Apple representatives had no comment Thursday beyond Cook's remarks.
Like most consumer electronics companies, Apple forges agreements with contract manufacturers to assemble its products overseas. However, the assembly accounts for a fraction of the cost of making a PC or smartphone. Most of the cost lies in buying chips, and many of those are made in the U.S., Cook noted in his interview with NBC.
The company and Foxconn have faced significant criticism this year over working conditions at the Chinese facilities where Apple products are assembled. The attention prompted Foxconn to raise salaries.
Cook didn't say which line of computers would be produced in the U.S. or where in the country they would be made. But he told Bloomberg that the production would include more than just final assembly. That suggests that machining of cases and printing of circuit boards could take place in the U.S.
The simplest Macs to assemble are the Mac Pro and Mac Mini desktop computers. Since they lack the built-in screens of the MacBooks and iMacs, they would likely be easier to separate from the Asian display supply chain.
Analyst Jeffrey Wu at IHS iSuppli said it's not uncommon for PC makers to build their bulkier products close to their customers to cut down on delivery times and shipping costs.
Regardless, the U.S. manufacturing line is expected to represent just a tiny piece of Apple's overall production, with sales of iPhones and iPads now dwarfing those of its computers.
Apple is latching on to a trend that could see many jobs move back to the U.S., said Hal Sirkin, a partner with The Boston Consulting Group. He noted that Lenovo Group, the Chinese company that's neck-and-neck with Hewlett-Packard Co. for the title of world's largest PC maker, announced in October that it will start making PCs and tablets in the U.S.
Chinese wages are raising 15 to 20 percent per year, Sirkin said. U.S. wages are rising much more slowly, and the country is a cheap place to hire compared to other developed countries like Germany, France and Japan, he said.
"Across a lot of industries, companies are rethinking their strategy of where the manufacturing takes place," Sirkin said.
Carl Howe, an analyst with Yankee Group, likened Apple's move to Henry Ford's famous 1914 decision to double his workers' pay, helping to build a middle class that could afford to buy cars. But Cook's goal is probably more limited: to buy goodwill from U.S. consumers, Howe said.
"Say it's State of the Union 2014. President Obama wants to talk about manufacturing. Who is he going to point to in the audience? Tim Cook, the guy who brought manufacturing back from China. And that scene is going replay over and over," Howe said. "And yeah, it may be only (public relations), but it's a lot of high-value PR."
Cook said in his interview with NBC that companies like Apple chose to produce their products in places like China, not because of the lower costs associated with it, but because the manufacturing skills required just aren't present in the U.S. anymore.
He added that the consumer electronics world has never really had a big production presence in the U.S. As a result, it's really more about starting production in the U.S. than bringing it back, he said.
But for nearly three decades Apple made its computers in the U.S. It started outsourcing production in the mid-90s, first by selling some plants to contract manufacturers, then by hiring manufacturers overseas. It assembled iMacs in Elk Grove, Calif., until 2004.
Some Macs already say they're "Assembled in USA." That's because Apple has for years performed final assembly of some units in the U.S. Those machines are usually the product of special orders placed at its online store. The last step of production may consist of mounting hard drives, memory chips and graphics cards into computer cases that are manufactured elsewhere. With Cook's announcement Thursday, the company is set to go much further in the amount of work done in the U.S.
The news comes a day after Apple posted its worst stock drop in four years, erasing $35 billion in market capitalization. Apple's stock rose $8.45, or 1.6 percent, to close at $547.24 Thursday.

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US economy adds 146K jobs, rate falls to 7.7 pct.

WASHINGTON (AP) -- The pace of U.S. hiring remained steady in November despite disruptions from Superstorm Sandy and employers' concerns about impending tax increases from the year-end "fiscal cliff."
Companies added 146,000 jobs, and the unemployment rate fell to 7.7 percent — the lowest in nearly four years — from 7.9 percent in October. The rate declined mainly because more people stopped looking for work and weren't counted as unemployed.
The government said Superstorm Sandy had only a minimal effect on the figures.
The Labor Department's report Friday was a mixed one. But on balance, it suggested that the job market is gradually improving.
November's job gains were roughly the same as the average monthly increase this year of about 150,000. Most economists are encouraged by the job growth because it's occurred even as companies have reduced investment in heavy machinery and other equipment.
"The good news is not that the labor market is improving rapidly — it isn't — but that employment growth is holding up despite all the fears over the fiscal cliff," said Nigel Gault, an economist at IHS Global Insight.
Still, Friday's report included some discouraging signs. Employers added 49,000 fewer jobs in October and September combined than the government had initially estimated.
And economists noted that the unemployment rate would have risen if the number of people working or looking for work hadn't dropped by 350,000.
The government asks about 60,000 households each month whether the adults have jobs and whether those who don't are looking for one. Those without a job who are looking for one are counted as unemployed. Those who aren't looking aren't counted as unemployed.
A separate monthly survey seeks information from 140,000 companies and government agencies that together employ about one in three nonfarm workers in the United States.
Many analysts thought Sandy would hold back job growth significantly in November because the storm forced restaurants, retailers and other businesses to close in late October and early November.
It didn't. The government noted that as long as employees worked at least one day during a pay period — two weeks for most people — its survey would have counted them as employed.
Yet there were signs that the storm disrupted economic activity in November. Construction employment dropped 20,000. And weather prevented 369,000 people from getting to work — the most for any month in nearly two years. These workers were still counted as employed.
All told, 12 million people were unemployed in November, about 230,000 fewer than the previous month. That's still many more than the 7.6 million who were out of work when the recession officially began in December 2007.
Investors appeared pleased with the report, though the market gave up some early gains. The Dow Jones industrial average was up 53 points in mid-day trading.
The number of Americans who were working part time in November but wanted full-time work declined. And a measure of discouraged workers — those who wanted a job but hadn't searched for one in the past month — rose slightly.
Those two groups, plus the 12 million unemployed, make up a broader measure that the government calls "underemployment." The underemployment rate fell to 14.4 percent in November from 14.6 percent in October. It's the lowest such rate since January 2009.
Since July, the economy has added an average of 158,000 jobs a month. That's a modest pickup from an average of 146,000 in the first six months of the year.
In November, retailers added 53,000 positions. Temporary-help companies added 18,000. Education and health care also gained 18,000.
Auto manufacturers added nearly 10,000 jobs. Still, overall manufacturing jobs fell 7,000. That was pushed down by a loss of 12,000 jobs in food manufacturing that likely reflects the layoff of workers at Hostess.
Paul Ashworth, an economist at Capital Economics, noted that hiring by private companies was actually better in October than the government first thought. The overall job figures were revised down for October because governments themselves cut about 38,000 more jobs than was first estimated.
The U.S. economy grew at a solid 2.7 percent annual rate in the July-September quarter. But many economists say growth is slowing to a 1.5 percent rate in the October-December quarter, largely because of the storm and threat of the fiscal cliff.
The storm held back consumer spending and income, which drive economic growth. Consumer spending declined in October, the government said. And work interruptions caused by Sandy reduced wages and salaries that month by about $18 billion at an annual rate.
Still, many say economic growth could accelerate next year if the fiscal cliff is avoided. The economy is also expected to get a boost from efforts to rebuild in the Northeast after the storm.

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