Australia to buy crude for US SPR, add domestic reserve

Australia is planning to spend about A$94mn ($59mn) to store crude in the US Strategic Petroleum Reserve (SPR) as part of efforts to meet its IEA obligations to hold 90 days' of net imports.

The government plans to use the money to buy oil at current low prices and store it in the SPR, in line with an agreement reached with Washington in March. Canberra has an arrangement to store oil in the SPR for an initial period of 10 years, energy minister Angus Taylor said.

Australia will also look to build a domestic oil reserve, although current storage capacity is full. It will consult with the industry on options, Taylor said.

The government also plans to co-ordinate with the private sector to improve domestic fuel security. It will work with Australia's four refineries on temporary measures to ease jet fuel stockpiles by amending fuel standards under the country's fuel quality standards act.

The Nymex front-month May contract, which expired yesterday, settled at $10.01/bl, up from unprecedented negative levels a day earlier. The Ice Brent June contract settled at $19.33/bl.

Australia's planned $59mn spending would buy it around 6mn bl at $10/bl or just under 3mn bl at $20/bl, equivalent to around 3½-7 days of imports. Australia's total crude and oil product imports averaged 881,000 b/d in February but are likely to decline in the coming months because of the Covid-19 pandemic.

Australia had 56 days of crude in storage at the end of February under the IEA methodology for measuring crude stockpiles. The Australian-owned oil in the US SPR will count towards Canberra's IEA obligations.

The US SPR contained around 635mn bl of crude at the end of January, according to data from the government's Energy Informational Administration. Washington has rarely, if at all, done any bilateral deals with IEA member countries on access to its SPR.

The US pledged last month to fill the 713.5mn bl SPR with ‘American made' oil. Plunging demand because of the coronavirus outbreak has led Washington to consider helping US oil companies by buying unproduced crude and keeping it underground as part of the SPR.

The government has contracted to store 23mn bl of crude in the SPR, US energy secretary Dan Brouillette said yesterday.

By Kevin Morrison