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Strong interest shown in crude release
The U.S. Department of Energy says it received “very high” industry interest in crude oil to be released from the Strategic Petroleum Reserve.
“Over 90 offers to purchase oil were received (by the June 29 deadline) and the Department’s offering of 30.2 million barrels of light, sweet crude oil was substantially oversubscribed,” DOE said in a June 30 press release.
DOE, auctioning the oil at President Obama’s direction, said it expects all contract awards to be completed by July 11, at which time details about purchasers and sale prices will be released.
The United States is releasing the oil as part of a multinational effort, the International Energy Agency announced June 23. The Paris-based International Energy Agency, or IEA, said its 28 member countries would release a combined 60 million barrels over a one-month period. That equates to 2 million barrels per day.
Rationale for oil release The release is necessary to protect a “fragile global economic recovery” and prevent serious market tightening, particularly for some grades of oil, IEA said.
It said the release will help make up for lost Libyan oil production, meet peak refinery demand for crude during the northern hemisphere “driving season,” and bridge the gap until a pledged production increase from Saudi Arabia reaches the market.
“We estimate that preventing further market tightening in the third quarter will require 2 million barrels per day of additional supply,” the IEA said in announcing the oil release.
The IEA announcement caused an immediate and substantial drop in crude oil prices.
U.S. Strategic Petroleum Reserve oil is stored in huge salt caverns along the Gulf of Mexico coastline. The reserve recently has been filled nearly to its capacity of 727 million barrels. It is the world’s largest supply of emergency crude oil.
Crude has been released from the reserve 17 times since 1985.
This is only the third time IEA member countries have acted collectively for an emergency release of oil stocks. They did it previously in 2005 after Hurricane Katrina damaged offshore platforms, pipelines and refineries in the Gulf of Mexico and in 1991 after Iraq’s invasion of Kuwait.
Of the 60 million barrels to be released, North America will account for half the total, with European countries releasing 30 percent and Asian countries 20 percent, the IEA said.
—Wesley Loy
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