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The department of Energy has sold seven million barrels of crude oil from the Strategic Petroleum Reserve to at least five buyers at prices of WTI plus US$1.50 to US$1.70 FOB.
The biggest buyer was refiner Phillips 66. The others included Saudi Arabia’s Motiva, Marathon Petroleum, and Trafigura, as well as Atlantic Trading & Marketing.
The budget deal that the U.S. Congress reached in early February includes the sale of 100 million barrels of crude oil from the SPR between 2022 and 2027—a total volume equal to some 15 percent of the current reserve.
This will involve the Department of Energy selling 30 million barrels of the SPR between 2022 and 2025, another 35 million barrels in 2026, and an additional 35 million barrels in 2027 to help fund the government and modernize the strategic petroleum reserve system.
The budget deal also involves the sale of US$350 million worth of crude oil, or some 5.7 million barrels, this year, with proceeds to be used to repair storage units at the reserve.
Currently, the SPR has around 665.1 million barrels of crude oil stored in underground caverns on the coasts of Texas and Louisiana. Of this, 258 million barrels are sweet crude and 406.2 million barrels are sour crude. The SPR has a capacity for 713.5 million barrels.
In fiscal 2020 and 2021, the Department of Energy will have to sell a combined 10 million barrels from the SPR, according to a recently released bill for funding the government.
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The same bill also called for lowering the threshold, at which the government is allowed to drawdown SPR crude.
The current threshold is 350 million barrels but if the bill is passed, it will be lowered to 340 million barrels. This means that the government will only be banned from drawing down on the SPR if its total is 340 million barrels or less.
The current level of stockpiles in the SPR is equal to more than 140 days of import protection. That’s substantially more than the 90 days of import protection required by the International Energy Agency (IEA).
Thanks to the fracking boom, drawdowns from the Strategic Petroleum Reserve have become an irresistible way to help fund the federal government, with local oil production booming and not showing any signs of a tend reversal anytime soon.
The SPR sell-off comes as the American Petroleum Institute (API) reports a massive surprise build in U.S. crude oil inventory, which is up by 5.321 million barrels for the week ending 23 March.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.