Oil companies and traders have started to withdraw some of the 21mn bl of crude they added to the US Strategic Petroleum Reserve (SPR) months ago during a shortage of commercial storage options.
The withdrawals began on 1 August, the US Energy Department said today, and additional withdrawals will be made upon the request of companies involved in the storage program. The agency has yet to say how much crude companies have pulled out of storage so far, but it plans to do so when it publishes an update to SPR inventory data on 11 August.
President Donald Trump's administration created the storage program after a collapse in fuel demand filled traditional storage and after the US Congress declined to provide a requested $3bn for the government to purchase enough crude to fill the SPR to its 713.5mn bl capacity. As part of the storage program, nine oil companies and traders signed contracts in mid-April leasing about 23mn bl of storage, although they had added only 21mn bl to storage when injections were required to conclude on 30 June.
The nine companies participating in the program signed contracts requiring them to leave about 440,000 bl in the SPR each month as payment for storage, according to contracts Argus obtained through a public records request. The companies agreed to transfer crude that would be equivalent to paying a monthly storage rate as low 4¢/bl to as much as $2.36/bl, based on yesterday's prompt-month Nymex WTI settlement price of $42.19/bl.
The SPR held 656.1mn bl of crude across its four storage facilities as of 31 July. Companies were allowed to begin withdrawing crude at the Bryan Mound, Big Hill and West Hackberry sites on 1 August. Withdrawals from the Bayou Choctaw site can start on 1 October. Crude withdrawals from all sites must be finished by 31 March.
The US Senate last month separately voted to revise the timing of 115.5mn bl of previously scheduled crude sales from the SPR, as part of the National Defense Authorization Act. The bill would reschedule 33.5mn bl of crude sales in fiscal 2023, and instead sell that crude in fiscal years 2022, 2024 and 2025. The bill also would delay the sale of 82mn bl until fiscal years 2029-30, rather than occuring in fiscal years 2025-28.
The Senate is seeking those timing changes because of a budget scoring issue, according to a congressional source. The crude sales need to generate revenue during specific years for a package of advanced nuclear demonstration projects, the source said. Some funding will be needed early on to fund design and engineering work, but the bulk of the funding will be needed in about a decade when actual construction work is set to begin.
