DOE Announces Details Of Strategic Petroleum Reserve Firesale

Tyler Durden's picture

Following the earlier general announcement that the SPR would sell 30 MM barrels of oil a lot of questions were left unanswered, such as what kind of crude will be sold, where will it be sold from, and at what price. The wait for answers is now over: The DOE has just released all the missing data. Per Reuters: "Under the terms of the U.S. sale that were issued by the department, the government does not plan to stagger the sale of the oil and will offer all 30 million barrels in one bid sale. The department will offer "sweet" crude oil from three of the reserve's storage sites: Bryan Mound and Big Hill in Texas and West Hackberry in Louisiana. The oil will have a base price of $112.78 a barrel, a spokeswoman for the SPR said." Which does not however mean that this is the price at which the oil will be sold: "Traders can bid above or below the "Base Reference Price" of $112.78, which is derived from the last five days of trading of Light Louisiana Sweet crude oil, as assessed by energy pricing agency Argus. Companies will submit their bids for the oil through a special department website. Delivery of the oil to the winning companies would take place over the month of August. Winning companies would pay for their oil during the month after the crude is delivered." Which simply means that China will convert quite a bit of America's trade deficit from dollars into oil.

And as a reminder, here is why China, which is now actively filling up its own SPR, couldn't be happier about this development. From Zero Hedge March 7. Paraphrasing from Dow Jones:

China
will start work on building strategic oil reserve tanks at the
north-eastern port of Tianjin by May, China Daily newspaper reported
Saturday.

Work will be completed before the end of China's
2011-2015 five-year economic plan, and filling this reserve will start
when the oil price is "appropriate", Tianjin city official He Shushan
was quoted as saying.

China's efforts to build up oil stocks are
closely watched by energy market analysts, as its demand for oil is a
key driver of global prices and huge amounts of crude are needed for the
project. China imports more than half the oil it uses.

The
reserve site in Tianjin is among eight stockpiling bases being prepared
in the second phase of China's strategic petroleum reserve project.

These
eight sites will have 26.8 million cubic meters of capacity, able to
store the equivalent of 169 million barrels of crude oil.

The
western countries' energy watchdog, the International Energy Agency, has
repeatedly criticized Beijing for not publishing national oil stock
volume figures, which are needed to calculate global oil demand.

Sites
for other second-phase bases include Zhanjiang and Huizhou in Guangdong
province, Lanzhou in Gansu province, and Jintan and Jinzhou in Liaoning
province.

China's petroleum reserve capacity was enough for 39
days of consumption by the end of 2010, with this comprising the SPR oil
and a further 168 million barrels of commercial reserve capacity, state
energy giant China National Petroleum Corp. said in January.

It is not only China: all of Asia is taking the prudent step of preparing for a very long storm. From the FT:

As
oil prices spiral higher amid turmoil in Libya, developing countries
across Asia are taking evasive action, shoring up their strategic
petroleum reserves against the risk of a prolonged supply shock. Their
actions could propel crude even higher.

The Philippines, citing
events in the Middle East, announced on Wednesday that it would require
oil companies in the country to maintain 15 days of reserves, and
refineries to keep enough oil to last for 30 days.

Manila’s move
is the most visible sign yet of how Asian countries are seeking to
improve their oil security amid what is shaping up to be the worst
supply crisis since the invasion of Iraq in 2003. Other big regional oil
importers are likely to follow suit.

China is the world’s
second-largest oil importer after the US. India is the world’s
fifth-largest, ahead of countries such as South Korea, France and the
UK. But the pair lack a strategic petroleum reserve that can be tapped
during a supply crisis similar in size and scope to the ones held by
western countries.

Unlike industrialised countries, which built
up their stockpiles three decades ago in the wake of the 1973 oil
crisis, China only recently began its strategic reserve programme,
starting to fill reserves in 2006 and completing a 102m barrel build-out
in “Phase One” two years later.

The second phase of the programme will build a further 168m barrels of reserves by the beginning of next year.

When
China finishes filling its reserve, which it is expected to do by 2020,
it will hold about 500m barrels, equal to roughly three months of
imports and the second-largest stockpile in the world.

China’s
strategic stockpiling “is likely to be a feature of the global oil
market not only this year but this decade”, says Soozhana Choi, head of
Asia commodities research at Deutsche Bank in Singapore.

Although
purchases are kept secret, analysts and oil traders believe that events
in Libya and the prospect of further supply disruptions in the Middle
East could boost strategic buying of crude.

“With
the expectation that prices are going to rise, they will accelerate the
pace of tank-filling,” says K.F. Yan, director at energy consultants
CERA in Beijing.

In other words, all of Asia thanks America's stupidity yet again, and specifially its service-based, oil hungry economy, which is about to proceed with the first of many fire sales of crude which will merely move from Point A (US) to Point B (somewhere in Asia).

Great work Obama. As always.

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Mike2756's picture

What entity is "managing" this?

Cleanclog's picture

Wait a minute!  

 Delivery of the oil to the winning companies would take place over the month of August. Winning companies would pay for their oil during the month after the crude is delivered." Which simply means that China will convert quite a bit of America's trade deficit from dollars into oil.

 

The Strategic Petroleum Reserve is meant to help the USA when there is a catastrophic supply disruption (ie. following Katrina). It was not structured nor intended to be for price manipulation to aid the economy by spurring consumer consumption. If this is to ease a "catastrophic" disruption, why is it not being delivered until August?  And when is the bidding scheduled for? 

It is a misappropriation by the IEA - driven by powers we are not "sure" of yet - but since 50% of the oil released is from the USA's SPR, you can be confident that our gov't/Treas/Fed was made aware of and influenced this decision in advance. 

Does anyone believe the bidding won't be rigged and manipulated too?  Wars start over these kind of things.  As we prepare to exit Afghanistan we have another war heating up.


This will backfire!

scatterbrains's picture

It's probably just that either GS or JPM got caught on the wrong side of the crude futes market and needed a bail out.

AGuy's picture

No it was O'bama caught on the wrong side of a pending election! O'bama needs a voting bailout!

 

treasurefish's picture

While you all are worried about oil, here's what's going on in the rest of the world:

 

Obummer is negotiating with the Taliban, and backing the Libyan rebels.  So what?  You need to see what your tax dollars are paying for yourself!


The Bad Guys


These videos look awfully like Al Qaeda to me. But don’t take my word for it.  Look at the evidence and decide for yourself.
A warning: these videos are graphic and horrific. They’re posted at obamaslibya.com and FederalJack.com, because it’s got hefty security around its site and rock solid courage to speak truth to power.


FederalJack will not back down, and will update the videos on obamaslibya.com as new footage arrives.
The first video shows a Libyan rebel beheading a Libyan soldier. If it looks like Iraq, well golly, the highest percentage of foreign fighters in Iraq (and Chechnya and Afghanistan) came from Eastern Libya. Unhappily for NATO, there’s no avoiding that this video was shot in Libya: The men are speaking a Libyan Ara
b dialect with its own distinct accent.


The second video shows gruesome footage of a Libyan rebel cutting up the rotted flesh of a dead soldier and forcing it into the hands of Libyan Prisoners of War, who are lined up in a row so they must eat it.
Another video shows a group of Rebels sodomizing a civilian with a pistol.
Another  shows a crowd of Rebels hanging and beheading a Libyan soldier.
Another video shows CIA operatives working side by side Rebel forces, driving around in trucks— proof that U.S. forces are already on the ground and active participants in the atrocities.
Another video shows several dead Libyan soldiers with their throats cut, lying in the back of a truck. The killings violate the Geneva Conventions of War, which protect enemy soldiers after capture. In the excitement, NATO Rebels encouraged a frightened on-looker to video the butchery and claim that Gadhaffi’s forces were responsible. Afterward, the man with the video grabbed his family and fled the Rebel stronghold. That’s how the video reached the fact-finding group in Tripoli

Cleanclog's picture

I wasn't "worried" about oil so much as about the manipulated markets, now further manipulated and additional markets, goverments and entities.

Your post is annoying in its context here.  A worthy post, but you are stretching to put here.  Just saying.

IQ 145's picture

 I think I understand; it's all part of the strategy of "winning the future"; they next thing to do is lower the painter over the rail on his scaffold and paint over the "TITANIC"with, "Hope and Change"; then everything will be fixed.

sabra1's picture

am sure this is all covered in the constitution!

Bunga Bunga's picture

Does it mean they admit that USA is in catastrophic condition?

Rusty Shorts's picture

 - not til August, then the USA will be in a catastophic condition.

Newsboy's picture

I agree, catastrophic August appears to be signaled.

e_goldstein's picture

backfire? this reeks of sabotage.

iNull's picture

Mad Max bitchez.

TPTB => TPTW => TPTNCR (The powers that nobody can remember).

Beatscape's picture

The IEA released a mock Q&A today to address questions re: the SPR release.  In this Q&A was a bit of shocker in that they openly acknowledged that Saudi Arabia does not have the famed spare capacity and spigot they can turn on as needed that every main stream media outlet and WS analyst claims that they do.  In fact, the release is a tacit admission of the fact that Saudi Arabia has little to no spare capacity.  Matthew Simmons was right all along...  This whole manuever is bullish for crude and exposes the tightness in the market.

Has the IEA consulted with OPEC or Saudi Arabia on this decision? Would this IEA action not discourage Saudi Arabia and other willing OPEC members from increasing oil production?

The IEA and its member countries have been in close contact with key oil producing countries, and in particularly with Saudi Arabia, which holds the lion’s share of OPEC’s spare capacity.  The IEA welcomes the announcement made by Saudi Arabia that it intends to make incremental oil available to the market.  However it will take time for these incremental barrels to be produced and shipped to consuming markets; the use of IEA strategic stocks now will help bridge the gap until these new supplies are available. Producers and consumers have a common interest in stabilising oil markets. This point has been highlighted many times before, and is a reason for the IEA’s close liaison with key oil producing countries at all times.

 

http://blogs.forbes.com/christopherhelman/2011/06/23/obama-taps-petroleu...

 

Long-John-Silver's picture

The sooner it happens the better off the survivors will be. Beans, Bullets, and Bullion Bitchez!

usefuloutput's picture

Pasta, Pistols, PM's, Putas!

Libertarians for Prosperity's picture

Doomers, goons and rednecks

Saddle up the Camaros, pilgrims.  This redneck done got mad.... 

 

tarsubil's picture

You hurt my feelings. I'm going to stop buying precious metals and guns because I haven't the self esteem to oppose the oligarchs. You're unstoppable like AAPL!

Herbert_guthrie's picture


Sir Gavrikon: Obviously, whoever junked you is not familiar with your top-notch comments on MW blogs.
You Sir, deserve your due....

Apologize for the idiot who junked you. He knows not what he does.

IQ 145's picture

 200% Silver ! (Margin loans are cheap!)

Caviar Emptor's picture

That's the 12th country with a yuan swap agreement

redpill's picture

These people are retarded.

Long-John-Silver's picture

No; these 'people' are politicians. Please do not degrade the mentally handicapped.

max2205's picture

I say FUCKTARDS. Our govt is a bunch of FUCKTARDS

dick cheneys ghost's picture

Seeing as how it came from the feds.......how believable is the info? Something else is going on.....

iNull's picture

True. But who elected them? Nothing spells F.U.C.K.T.A.R.D.A.G.E. like:
a) The scientifically illiterate, "we got enough oil in Alaska to last us a thousand years," Lindsey Williams parrots.
b) The psychotic, shaven-head, drum-beating Hare "abiotic oil" Krishnas.

Manthong's picture

So how much did GS make trading in front of this "surprise"?

Re-Discovery's picture

What a silly frivolous foolish bumbling -- and above all DANGEROUS -- Government we have.

They are worse than a Banana Republic.  Think Kafka or Borges.  Obviously Orwell.

 

alien-IQ's picture

I think they've stumbled right into Harold Pinter levels of absurdity.

alien-IQ's picture

another little ancillary market benefit that will come from this down the road will be how the market will be 'surprised" to see how the oil inventories have declined and will surely see it as a bullish sign to send the markets ever needlessly higher because....well...just because.

I think if I live long enough to see even one smart decision made in Washington that actually benefits the people of America...I'd probably drop dead of a heart attack on the spot.

fxrxexexdxoxmx's picture

If SS and Medicare were bad ideas the (D) and (R)'s would make them go away!!!!!!

They must be good ideas or why are they still defended?

 

/s

snowball777's picture

Because lobbyists need to drain energy through their dangly filcher pods too?

daneskold's picture

Obama is privatizing the strategic petroleum reserve because of the debt ceiling.

 

How desparate for cash!

 

Next up for sale, the Lincoln Memorial.

Guy Fawkes Mulder's picture

Good analysis, except I wouldn't say "Obama".

Like W before him, he is a rubber-stamper and dancing puppet for decisions made by... a higher power...

By the time you become the leader of a country, someone else makes all the decisions -- you just sign your name.

-William Jefferson Clinton, 1998, here

(a lot of truth is said in jest)

Long-John-Silver's picture

Considering the number of persons Lincoln murdered in a civil war simply because some states had had enough of an overbearing central government and wanted to legally leave the union. The Lincolin Memorial should be sold for scrap.

Diogenes's picture

Here we go again. They did legally leave the union. After they left the Union they ganged up on the Union and attacked it at Fort Sumter. The Union then defended itself and the rest is history.

Cdad's picture

So let me get this straight, the administration that refuses to approve oil drilling permits all over the US is now selling our Strategic Petroleum Reserves to China.

Let me dwell on this for a bit...

Rusty Shorts's picture

Cdad, I'm glad you you're here on ZH, i like the way you think.

Cdad's picture

Well, I have thought about it for awhile now, and I have decided that even a HUGE FAN of Dancin' with the Stars can see how absurd this one is.

As was Rome, so too are we being destroyed from within.

Downtoolong's picture

the government does not plan to stagger the sale of the oil and will offer all 30 million barrels in one bid sale.

And the winning bid is Walter Himmel, a New Jersey dentist, who says he’s been successfully trading (er investing) in oil on margin for over three years.

There, that’ll show those damn speculators what for.

Spastica Rex's picture

I guess I don't get how $113/barrel oil is that helpful, anyway.

CrashisOptimistic's picture

This is the dirty little secret or oil and reporting WTI as the measure.

We don't burn much WTI.  We burn imports mostly.  They are all priced higher.  The avg was about $113.