Oil companies and traders submitted more than 90 offers to buy some of the 30.24 million barrels of crude being released from the United States’ emergency stockpile, the Energy Department announced today.
“Industry interest . . . was very high” and the sale of light, low-sulfur crude from the Strategic Petroleum Reserve was “substantially oversubscribed,” according to the department.
Bids for the emergency oil were due Wednesday afternoon, and the Energy Department anticipates final contract awards to be completed by July 11.
Although bids were not disclosed Thursday, the cost of the emergency oil is indexed to Light Louisiana Sweet crude prices, which are provided by Petroleum Argus, and have been around $112 per barrel.
Contracts for August delivery of the U.S. benchmark, the lower quality West Texas Intermediate crude, rose 65 cents, or 0.7 percent, to $95.42 in trading Thursday.
The Obama administration announced it was releasing oil from the Strategic Petroleum Reserve last week — offering up half of the 60 million barrels that the International Energy Agency’s 28 member nation’s committed to put on the market.
Administration officials said the move was essential to restoring stability to the market and offsetting the loss of 1.5 million barrels of high-quality light, sweet crude oil daily from Libya during the summer driving season.
Republican critics blasted the decision as politically motivated, and today, more than two dozen lawmakers insisted that the White House explain its plan for refilling the reserve.
The high demand for the reserve oil stands in contrast to a lackluster response to the last Strategic Petroleum Reserve auction. After Hurricane Katrina damaged pipelines, offshore rigs and refineries in 2005, the U.S planned to sell 30 million barrels of crude from the reserve, but ultimately auctioned off just 11 million barrels .
Today’s announcement did not say who placed bids for the oil, or which offers were deemed “apparently successful.” But in an Energy Department conference call on the sale earlier this week, traders were seeking information along with refiners, signaling that some of the crude may not be immediately headed to refineries.
The government does not bar successful bidders from storing oil for later use or resale. But it does bar the winners from exporting any of the stockpiled crude unless they return an equal volume of refined product to the U.S.
The flood of offers for the emergency oil surprised some market analysts, because the sale comes at a time when U.S. inventories continue to hover near record levels.
Storage tanks are full in part because of bottlenecks at a major oil hub in Cushing, Okla., which has recently begun receiving more Canadian crude via pipeline and more domestic crude from U.S. fields, including the Bakken Shale formation in North Dakota.
David Pursell, managing director of the Houston-based investment bank Tudor, Pickering, Holt & Co., said the surge of would-be buyers could be a sign of traders bullish that oil prices will climb or an indication of real fear about the availability of the light sweet crude that refiners prefer.
“The current market data says we’re okay — we’ve got plenty of crude in inventory — and prices have been coming down, even before the release was announced,” Pursell said. “So it didn’t feel like there was a panic.”
But, he added, there may be fear “that things could get tighter,” especially if Saudi Arabia isn’t able to ramp up its production as quickly as planned.
Winning bidders of the SPR oil must arrange for transport of the crude, whether to tankers, onshore storage or refineries.
The Obama administration originally considered issuing a blanket waiver of the Jones Act, which generally requires American ships and crews to be used whenever goods are transported between U.S. ports. But the administration later reversed course and said it would consider issuing those waivers only as needed.