DOE Announces Details Of Strategic Petroleum Reserve Firesale

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.