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US suspends 12 million barrel SPR sale due to drop in oil prices

Highlights

DOE says timing not optimal for sale

No makeup sale announced

Sale was offering sour crude

Washington — The US Department of Energy has suspended a sale set for later Tuesday of up to 12 million barrels of government-owned crude, due to the recent crash in global oil prices, an agency spokeswoman said.

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"In light of the recent fluctuations in global oil markets, the US Department of Energy is suspending the recently announced sale of crude oil from the Strategic Petroleum Reserve," Jess Szymanski, a DOE spokeswoman, said in a statement. "Given current oil markets, this is not the optimal time for the sale."

The suspension of the SPR sale had little apparent impact on oil futures prices, but boosted the value of Mars crude Tuesday, after it fell sharply Monday following the steep cut in the official selling prices for Saudi crude globally.

Medium sour crude Mars was heard to trade at a 50 cents/b discount to cash WTI Tuesday, $1.25/b stronger than the last heard offer Monday of a $1.75/b discount. The grade was last heard bid Tuesday at a 70 cents/b discount to cash WTI, and last heard offered at a 40 cents/b discount.

Market sources pointed to the suspension of the SPR sale as the main driver behind the boost for the differential, however, values for the grade still remain significantly weaker than the year-to-date average of a $1.13/b premium to cash WTI due to the reduction in the OSP for Saudi crude into the US Gulf Coast.

NO MAKEUP DATE

A makeup date for the sale was not announced.

"The department continually monitors and evaluates global oil markets and will provide updated information as market conditions change," Szymanski said.

By law, DOE can delay the sale until later this fiscal year in anticipation of higher oil prices, sources said.

The sale, which was announced in February, was being held partly to fund upgrades to the nearly 43-year-old government crude reserve. It was initially approved by Congress as part of the Bipartisan Budget Act of 2015, which allowed DOE to sell up to $2 billion worth of SPR crude to fund the modernization with sales from fiscal 2017 through fiscal 2020.

The now-suspended SPR sale would have offered: up to 6 million barrels of sour crude from the Bryan Mound SPR site in Texas; up to 3 million barrels of sour crude from the Big Hill SPR site in Texas; and up to 3 million barrels of sour crude from the West Hackberry SPR site in Louisiana. The crude was scheduled for delivery throughout April and May.

In three modernization sales so far, DOE has sold 15.22 million barrels of crude for about $970.8 million, delivering to DOE an average of about $63.80/b over the three sales. For its sale this week of up to 12 million barrels of sour crude, DOE would be expected to receive about $360 million at current oil prices of about $30/b, roughly $90 million less than the amount Congress authorized DOE to sell.

As of Friday, the US SPR held 635 million barrels of crude, including 384.7 million barrels of sour crude and 250.3 million barrels of sweet crude.