The US Department of Energy (DOE) has begun contacting trading firms and refiners to gauge interest in another round of crude loans as part of its 172mn bl drawdown from the US Strategic Petroleum Reserve (SPR), market sources said.
Crude from the Bryan Mound and Big Hill SPR facilities could soon be offered for loading in November and December, with earlier loading dates awarded to those making higher bids. It is not clear what the higher bids would entail, and DOE could choose not to make any awards.
As much as 30mn bl could be offered, sources said.
None of this has been directly confirmed, and it is unclear whether DOE has formally opened bidding. DOE did not immediately respond to requests for comment. Last week US energy secretary Chris Wright said more SPR sales were "a very real possibility."
Firms took around 133mn bl of US SPR crude between March and June, but a remaining tranche of roughly 40mn bl drew limited interest by late June as potential borrowers were put off by falling crude prices and the requirement to return more crude to the SPR than they were loaned. Only 500,000 bl was contracted in that round, leaving the bulk of the tranche available.
Some US Gulf coast refiners have already begun selling crude they would typically process to make room for potential SPR supplies, sources said. Cargoes of medium sour Southern Green Canyon were being offered to European buyers at premiums of more than $10/bl to the North Sea Dated benchmark on a delivered basis, some traders said.
The release of SPR crude earlier this year helped ease Europe's previous supply shock.
US crude arrivals in Europe reached an all-time high of 2.55mn b/d in May, according to records from trade and analytics firm Vortexa going back to 2016. This reflected an influx of around 350,000 b/d of SPR crude and more than 330,000 b/d of other US grades displaced by the SPR releases.
But some European refiners may be more reluctant to take SPR supplies this time because of lingering concerns that hydrogen sulphide scavenger in the crude could corrode some refinery systems, traders said.
Forward prices for North Sea crude and spot differentials for Mediterranean grades including CPC Blend and Libya's Es Sider have retreated from multi-month highs, partly because of the possible US release, traders said. The December North Sea forward price fell by around $6.50/bl in the week to 21 September.
North Sea Dated dropped by $7.67/bl to $118.37/bl yesterday, leaving it more than $14/bl below last week's peak. Premiums for CPC Blend and Es Sider to North Sea Dated fell by $1.40-1.50/bl to $7.85/bl and $6.50/bl respectively.
