Financial analysis of the SPR oil swap:

Published October 17th, 2000 - 02:00 GMT

It would cost $943 million to buy the 30 million barrels on the futures market for delivery this November at the acceptance day closing price of $31.43 per barrel.  


This means the successful bidders received a loan of $943 million. At closing price of $28.21 for a November, 2001 futures contract the 31.56 million barrels the oil companies will have to repay at that time could have been purchased for $890 million dollars.  


WTRG would like to have a banker like that. This results in the oil companies being charged a negative 5.6 percent rate of interest. To put it another way that is 12 percent lower than the current Federal Funds Rate. We want the DOE for our banker.  


Fuel Oil and Diesel from SPR release can't meet goal:  

Increases in distillates ( gasoline and fuel oil ) as a result of the SPR swap are discussed in an AP news articles including the Winter fuels report. 


The EIA comments that of the 30 million barrels there will only be a net increase of 10 million barrels as 20 million barrels will replace a similar quantity of imports. Acting Administrator Mark Mazur then goes on to say that this will achieve the policy goal of an additional 3 - 5 million barrels of distillate over the production in the absence of the SPR release. 


If this is so, then there has been a radical change in the operating characteristics of U.S. refineries. In the last two decades, the highest production of distillates as a percent of refinery input was 25.6 percent in November of 1996.  


It seems hard to get 3 million out of a net increase of 10 million barrels and 5 million won't happen. Even at the highest percentage of distillate production, refineries can only produce 2.5 million barrels of crude from 10 million barrels. 



© 2000 Mena Report (

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