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:

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

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.

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

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

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.

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

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:

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.

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.

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.

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.

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.