Valero Tops Successful Bidder List for U.S. Strategic Crude
Valero Energy Corp. stands to receive the most crude of any company in the U.S. Energy Department ’s sale of oil from the Strategic Petroleum Reserve. Source: Department of Energy via Bloomberg
June 24 (Bloomberg) -- Stephen Schork, president of Schork Group, discusses the International Energy Agency's decision to release emergency crude stockpiles and the outlook for oil prices. Schork speaks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Valero Energy Corp. (VLO), the largest U.S. independent refiner, stands to receive the most crude of any company in the Energy Department’s sale of oil from the Strategic Petroleum Reserve.
The department plans to sell 30.64 million barrels of crude, according to the list of “apparently successful” offers posted on its website. Valero was awarded 6.9 million barrels, followed by Geneva-based Vitol Group, which may get 4 million.
“We treated it like any other opportunity to buy crude oil,” said Bill Day, a Valero spokesman. “We expressed our interest and if we could get feedstock at a good price we would do it.”
Fifteen companies were awarded oil. The offers averaged $107.19 a barrel, and ranged from $104.976 a barrel from Barclays Bank Plc to $109.76 by Valero. The U.S. paid an average of $29.76 for oil in the SPR, according to the department, giving the government a profit on the sale of about $2.37 billion, not counting storage costs.
The oil from the SPR will be sold relative to Light Louisiana Sweet crude prices published by closely held Argus Media Ltd. Offers were submitted based on a reference price of $112.78 at the time the sale was announced, so buyers may pay an average of $5.59 below the spot LLS price when the oil is delivered. Spot LLS was $107.89 a barrel at 3:23 p.m. in New York, according to data compiled by Bloomberg.
Letter of Credit
All “apparently successful offerors” are required to provide a letter of credit within five business days as a guarantee of performance and payment, according to an Energy Department document outlining the sales process. Once the department has receipt of the financial guarantees, it will award the oil sales contracts.
Valero has the capacity to process all of the oil it bid for if the contracts are awarded, Day said.
Other successful offers came from JPMorgan Chase & Co. (JPM), trading companies Trafigura AG and Hess Energy Trading Co.; terminal and pipeline operator Plains All American Pipeline LP. (PAA)
Refiners that were awarded oil included Tesoro Corp. (TSO), Shell Trading Company, Sunoco Inc. (SUN), Murphy Oil Corp. (MUR) Marathon Petroleum Co., Exxon Mobil Corp. (XOM), ConocoPhillips (COP) and BP Plc. (BP/)
About 25 million barrels of SPR crude were bid on for delivery by vessel. A buyer of the oil who wants to store it or send it to refineries on the East Coast may require a waiver of the Jones Act that restricts the shipment of goods between U.S. ports to American-flagged vessels, which are in short supply.
IEA Release
The department closed bidding June 29 on about 30 million barrels of light, low-sulfur crude for sale, half of the 60 million barrels to be released by International Energy Agency member nations to make up for the loss of Libyan oil exports during the civil conflict.
The department expects to award contracts by July 11 and announce purchasers and sales prices at that time. The sale was “substantially oversubscribed,” with more than 90 offers to purchase oil, the department said in an e-mailed statement yesterday.
The most oil was awarded from storage at Bryan Mound, Texas, about 40 miles south of Houston, with successful offers for 13.2 million barrels. Oil there fetched the highest bids, at an average of $107.33 a barrel. Crude stored there averaged 0.371 percent sulfur as of May 2010, with an API gravity of 36.4. About 69 percent of the low-sulfur oil in the salt cavern is from the North Sea, according to the SPR.
There were 11.9 million barrels awarded from West Hackberry, Louisiana, at an average of $107.20. Oil there is the lightest and sweetest of the three locations, with a sulfur content of 0.325 percent and a 37 API. Big Hill, Texas, accounted for 5.51 million barrels at $106.87. The oil at Big Hill averages 0.414 percent sulfur, 35.4 API.
To contact the reporter on this story: Paul Burkhardt in New York at pburkhardt@bloomberg.net;
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.
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