Bidding begins for US oil stockpile sale

[Paciente]

Bidding begins for US oil stockpile sale

Tue Sep 6, 2005 12:38 PM ET
   
 
By Chris Baltimore

WASHINGTON (Reuters) - Hurricane-hit refiners have until Friday afternoon to submit bids for 30 million barrels of crude oil offered for sale from the government's emergency stockpile, the U.S. Energy Department said on Tuesday.

The sale was expected to help calm crude oil prices, which roared to a record high of $70.85 a barrel soon after Hurricane Katrina slammed into Louisiana and Mississippi last week.

U.S. crude oil prices dropped by nearly $2 a barrel on Friday after the Bush administration announced it would offer 30 million barrels of crude to the market. On Tuesday, prices fell another $1.47 to $66.10 a barrel by midday as major pipelines and three refineries returned to operations.

For the stockpile sale, the Energy Department said it set a "base reference price" of $68.67 per barrel for sweet crude and $61.66 per barrel for sour crude.

Michael McWilliams, assistant project manager of the Strategic Petroleum Reserve, said the reference price will be used to determine prices bidders pay for the crude.

All bids must be submitted via the Energy Department's Web site by 4 p.m. CDT (2100 GMT) on Friday, McWilliams said in a 30-page notice. Awards from three stockpile locations in Texas and Louisiana will be made by the following Friday, September 16.

OIL TO FLOW BY OCT. 1

Successful bidders will take delivery of the oil beginning October 1.

"SPR volumes are generous and the quality looks fine, so the real issue for refiners is how that prospective purchase shapes up against alternatives in terms of certainty, price and availability," said Frank Verrastro at the Center for Strategic and International Studies.

"If you are not sure you can get the oil you need ... elsewhere, then the SPR pool is an attractive alternative," he added.

But the pressing issue for the U.S. market is gasoline more than crude oil, so "this isn't really that much what the market needs," said Jamal Qureshi, an analyst with PFC Energy in Washington.

Refiners have an appetite for the SPR's sweet crude supplies that yield more gasoline, and current futures market prices encourage them to build stocks, Qureshi said.

This is only the second time a major oil release from the stockpile has been ordered by a president. The previous one, involving 17 million barrels, took place in 1991 after Iraq's invasion of Kuwait.

In the current sale, the government set the minimum lot delivery size at 350,000 barrels for vessels, 40,000 barrels for barges, and 100,000 barrels for pipelines. The 30 million barrels of oil are part of the nation's 700 million barrels in the Strategic Petroleum Reserve.

About half of the oil is "sweet," or low-sulfur, quality, which is easier for most U.S. refineries to make into gasoline and other products. The other half is "sour," or slightly higher-sulfur, the government said.

U.S. Energy Secretary Samuel Bodman said in an interview last week the government would consider selling more emergency oil from the stockpile if needed.

The U.S. release is part of the International Energy Agency's (IEA) total release of 2 million barrels per day (bpd) over the next 30 days, the first time the IEA has tapped its members' combined 1.5 billion barrel stocks since 1991.

After Katrina hit one week ago, the U.S. market initially lost daily gasoline production of about 1 million barrels, equal to 10 percent of the nation's normal consumption. Three of nine refineries shut in Louisiana and Mississippi by the storm's 140 mph winds and flooding were in the process of restarting operations as of Tuesday.

Gulf of Mexico oil and natural gas production continued to improve. On Monday, the U.S. Minerals Management Service said 30 percent of oil and 48 percent of gas was flowing again.

The Strategic Petroleum Reserve consists of crude oil stored in several underground salt caverns in Texas and Louisiana. The stockpile was created by Congress in the mid-1970s, after the Arab oil embargo jolted the U.S. economy.

A new energy law that took effect last month will eventually boost the stockpile to 1 billion barrels of crude.


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