Is This Why The Price Of Oil Dropped In Past Few Days? US To Release Oil From Strategic Petroleum Reserve To Test System

Updates

March 18, 2014: the results of the SPR sale -- as reported by Bloomberg --

Phillips 66 and Royal Dutch Shell walked away with about 3.3 million barrels of the 5 million that the Energy Department sold in what will be the first release from the U.S. Strategic Petroleum Reserve since 2012.

Exxon Mobil Corp., Marathon Petroleum Corp. and Mercuria Energy Asset Management BV also were named winners in the department’s report on successful offers. Chevron Corp., Valero Energy Corp. and Petroleos Mexicanos were among companies that made bids that the Energy Department turned down. This was the first test sale for the reserve since 1990.

The successful offers totaled $495 million, for an average price of $99 a barrel for the sour crude stored in salt caverns on the Gulf Coast. Southern Green Canyon crude, a sour grade produced in the Gulf of Mexico, cost $96.08 a barrel today, according to data compiled by Bloomberg.

The Energy Department offered 4 million barrels from the West Hackberry storage area in western Louisiana and 1 million from the Big Hill cavern in eastern Texas. Deliveries will be made between April 1 and May 10. It will be the first release from the reserve since the department exchanged 1 million barrels with Marathon after Hurricane Isaac in 2012. 

Original Post

Reuters is reporting:

The U.S. Department of Energy will sell up to 5 million barrels of crude oil from the Strategic Petroleum Reserve, a move it said was to test the capabilities of the nation’s emergency stockpile in a rapidly changing oil market.

In the first sale from the reserve since 1990 that is specifically designed as a test, the department will offer sour crude from its West Hackberry and Big Hill sites on the U.S. Gulf coast, with bids due March 14.

Surging U.S. shale oil production has changed the logistics of U.S. crude markets. Instead of moving oil from the Gulf up to the center of the country, as was traditionally the case, major pipelines have reversed course to move a glut of shale oil from places like North Dakota to points south.

“Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred,” department spokesman Bill Gibbons said.
The test sale was needed to “appropriately assess the systems capabilities in the event of a disruption,” he added.

So, how much oil is this?

The release would be equivalent to about one-quarter of the crude oil used in the United States every day, but the news still helped to push oil prices toward one-month lows.

So how much oil does the SPR hold? In round numbers, the capacity is 730 million bbls; it currently holds 700 million bbls. At a consumption rate of 20 million bbls/day, this equates to about a month's supply of oil. Obviously, if "we" HAD to release the oil due to severe shortage (for whatever reason), national consumption would be reduced significantly, stretching that month's supply to, oh, let's say, six weeks.

I'm having trouble getting my hands around releasing a quarter's day of consumption and seeing price of oil drop two percent. By tomorrow, we will be back to where we are, and the SPR will be 5 million bbls less. I'm wondering if the Bakken operators might want to consider an oil co-op storage complex west of Williston? The problem is the "red queen" effect.

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QUIZ

See if you can find the phrase "global warming" in this New York Times story:

Opening up heating and electricity bills has been a bit of a shocker in recent weeks. Exactly how shocking became clear on Wednesday when the Energy Department released a report showing just how expensive it was to keep warm and cook dinner this winter.

Those living in mostly rural and Midwestern areas who depend on propane are expected to spend 54 percent more this winter than last. Those who rely on heating oil, largely in the Northeast, will be paying 7 percent more. Natural gas consumers will pay 10 percent more and electricity consumers will pay 5 percent more. [Do we know electricity costs more this year? Can you say "war on coal?"]

The department estimated that winter energy costs for heating with propane in the Midwest would be $2,212 a household, $759 more than it projected in October. It estimated that homes using heating oil would spend $2,243, $197 higher than it had projected.

Economists have warned that the increased heating fuel prices are taking dollars out of the wallets of consumers who otherwise might spend their money on clothes and restaurants. But the impact is probably going to be neutralized at least in part by the decline in gasoline prices, which this winter have averaged about 25 cents a gallon less than last year.

On another note, I honestly did not know that gasoline is cheaper this year than last year. 

And on another note, "global warming" might not have been mentioned in the story, but "North Dakota" was:

The extreme cold also slowed the frenzy of oil drilling and production in shale fields around the country, particularly in North Dakota. Drillers had to rely heavily on additional heating equipment, in part to keep the large volumes of water required for hydraulic fracturing from freezing. Heavy snow also interfered with oil extraction and road transportation of equipment.