The Oil Drum

38 comments on This Week in Petroleum 9-26-07

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Peak Peter on September 26, 2007 - 4:15pm

Has anyone else noticed the build in the SPR of late?

There has been no announcement from any agency I can find that stated the SPR was going to start building crude supplies - and the current political and economic climate would have me believe that there are better times (for those in power's careers, not for US energy security) to be building crude inventories.

Granted, we are entering refinery turn around season, but still - this seems odd to me, in a time when the administration had to be hoping that inflation prints low, enabling more money printing (I mean rate cuts).

As of 9/6/2007, we had 690300K in the SPR. This number had not changed for the previous 14 weeks.

Two weeks ago, the week ending 9/12/2007 report showed a 100K build in the SPR, brining it to 690400K.

Last week's report for the week ending 9/19/2007 showed an increase of 500K, bringing the SPR to 690900K.

Then, today's report for the week ending 9/26/2007 showed a meaningful build of 1600K to 692500K. A level we have not seen since October of 2005 when we started the Katrina drawdowns.

We are now just 8M barrels away from the all time high of 700500K reached in September of 2005.

Anyone have any information to add?

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Slippery Slope on September 26, 2007 - 10:28pm

Strategic Petroleum and Other Oil Reserves
U.S. Strategic Petroleum Reserve

The Energy Policy Act of 2005 directed the Secretary of Energy to fill the SPR to its authorized one billion barrel capacity. This required the Department of Energy to complete proceedings to select sites necessary to expand the SPR to one billion barrels.

Record High Crude Bottles Up SPR Buy Plans

The Department of Energy said it is "still evaluating" its plans to buy crude oil for the Strategic Petroleum Reserve after scrapping plans earlier this year - when oil prices then around $20 a barrel below current levels - were deemed "too high."

Some crude will continue to trickle into the rainy-day stockpile, held in underground salt caverns along the Gulf Coast, through a transfer program where oil companies pumping oil from federal lease pay royalty fees with oil, rather than cash.

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Leanan on September 27, 2007 - 12:16pm

Courtesy of Dante at PO.com:

SPR Awards Exchange Contract to Shell Trading

The U.S. Department of Energy (DOE) today awarded a contract to Shell Trading for exchange of 8.7 million barrels of royalty oil produced from the Gulf Coast for crude oil meeting the quality specifications of the Strategic Petroleum Reserve (SPR). The exchange oil will be delivered to two SPR sites, West Hackberry, Louisiana and Bryan Mound, Texas.

The offer submitted by Shell Trading represented the highest value of specification-grade oil for the Reserve. Deliveries are expected to begin in August 2007 at a modest rate of approximately 50,000 barrels per day for a period of six months.

He thinks there may have been a delay due to the storms that resulted in the SPR increase not showing up until now.

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EthanS on September 27, 2007 - 1:20pm

Oil is cheap now - makes sense to buy before it goes higher. And it WILL go higher:

1) Depending on how quickly global refinery expansion occurs, we could see $100 by June.
2) Dollar will keep slipping, forcing oil to rise in response.

The reading I'm doing on refinery capacity this week leads me to see $75/ (Euro)50 as a new price floor. We're still not seeing much demand destruction in transportation, so demand should stay high, steadily bidding up the price for finished product. Until there's more refinery capacity there's no incentive for OPEC to raise output.

In the medium term, OPEC faces the potential of rising non-OPEC production (and substitutions - bio fuels, tar sands), but I'd be astounded if that grew fast enough to affect prices over the next 18 months. Even if non-OPEC liquids grew more rapidly, OPEC could always cut production slightly to keep a $75 price peg.