U.S. to sell 32 million barrels of SPR oil

Nov 25 Reuters - The United States will sell 32 million barrels of crude from four Strategic Petroleum Reserve SPR sites to be delivered between late December and April 2022, the Department of Energy DOE said as it auctions oil to try to lower global prices.

After U.S. President Joe Biden announced on Tuesday that he will release millions of barrels of oil from strategic reserves, international oil prices have held above $80 a barrel. However, traders said they were expecting the sale of SPR oil, which is mainly blended sour, or high-sulphur, crude, to depress the value of U.S. sour crude grades, such as Mars and Southern Green Canyon, and benefit buyers in Asia, which processes high-sulphur oil.

In the first auction of the coordinated release, about 10 million barrels will be made available from Big Hill and Bryan Mound in Texas, about 7 million barrels from West Hackberry in Louisiana and another 5 million barrels from Bayou Choctaw in Louisiana, according to the DOE.

Early deliveries will be accepted in late December, with the delivery of the goods taking place January through April 2022, it added.

The DOE said that buyers will have to return the oil at later dates between 2022 and 2024.

Companies are required to submit bids on December 6, and contracts will be awarded no later than December 14.

One trader speaking on condition of anonymity said that the release equated to a steady 270,000 barrels per day stream of medium sour grades, providing direct competition to Mars.

The trader said that the quality of crude to be released will have API gravity of 31 to 33 degrees, which is very good news for Asian buyers of Mars.

The grade, already valued at around minus $3.50 per barrel versus WTI on Wednesday, is expected to weaken further.

South Korea is the top buyer of Mars crude in Asia, while China has purchased the grade whenever the arbitrage window is open.

The prompt WTI monthly spread has flipped into contango after the SPR announcement, making it economically for traders to ship oil over long distances as its value increases over time.

The DOE will sell up to 18 million barrels of SPR crude no sooner than December 17th.

The winners of a regular U.S. SPR sale of 20 million barrels of crude in September were Atlantic Trading Marketing Inc, an arm of French company TotalEnergies Chevron USA, ExxonMobil Oil Corp, Marathon Petroleum Supply and Trading, Motiva Enterprises, Phillips 66 Co, Unipec America Inc, and Valero Marketing and Supply Co.