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No More Borrowing Crude Oil from the Strategic Petroleum Reserve to Refineries
The U.S. Department of Energy announced on the 4th that it will no longer borrow crude oil from the Strategic Petroleum Reserve to any refinery.According to foreign reports on November 4, the U.S. Department of Energy announced on the 4th that it will no longer release crude oil from the National Strategic Petroleum Reserve to any refinery affected by hurricanes Gustav and Ike.
Since September 8, the Energy Department has loaned 5.389 million barrels to refineries from emergency stocks. The most recent release of crude oil from the Strategic Petroleum Reserve was on October 14.
The refinery will repay the loaned crude oil through seaborne crude oil from January to May 2009, and will need to pay an additional unspecified amount of crude oil as compensation for the release of crude oil from the Strategic Petroleum Reserve.
Refineries received crude released from the Strategic Petroleum Reserve when the hurricane disrupted Gulf Coast oil production and the operation of some pipelines, but crude prices were above $100 a barrel at the time.
The current price of crude oil futures for delivery from January to May 2009 on the New York Mercantile Exchange (Nymex) is around US$70-72/barrel. If current price trends continue, it means that the crude oil released from the Strategic Petroleum Reserve received by the refinery is high-value crude oil, and the cost of repayment is relatively low, so that the refinery obtains an implicit profit.
U.S. Department of Energy spokesperson Healy Baumgardner claimed that when refineries enter into emergency exchange contracts, they accept the risk of repaying borrowed crude oil regardless of changes in market conditions. No matter how the price changes, the government will take the crude oil that should be repaid plus the additional compensation as a whole.
The United States holds approximately 701.8 million barrels of strategic oil reserves in underground caverns along the Gulf Coast.
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