The Daley Note: August 3, 2023
The 1st of what was to be 3 restock installments into the Strategic Petroleum Reserve, SPR, Big Hill Site began August 1, 2023. The 3rd installment’s request for proposal to purchase 6 MMbbls in October and November was withdrawn Aug 2nd as crude oil prices climbed above $80/bbl. EDA believes the WTI price improvement was due to a combination of OPEC cuts, low storage levels and SPR restocks. The SPR continues to communicate they are committed to restocking the US Oil reserves but at a later date when crude oil prices are in the SPR’s desired range of $67 - $72/bbl.
The 1st installment of 3.1 million barrels of sour crude oil will make its way from the Gulf of Mexico at an average price of $73.37/bbl. The SPR Request for Proposal to purchase crude oil has stipulated the crude oil must be a sour quality and a US produced barrel. This will generally exclude production from the market hubs of Patoka, Cushing and Guernsey as they are the typical carriers of Canadian Crude Oil. East Daley thinks the required sour crude oil will primarily come from the Gulf of Mexico production. We believe the SPR restock will not be a significant supply and demand intrusion as Louisiana Gulf Coast Exports have been averaging ~650 Mb/d in the 1H23 and Louisiana Gulf of Mexico production is ~1.5 Mb/d.
At an average rate of 100,000 b/d, the 36” pipeline (~800Mb/d capacity) connection to the Big Hill Site from Nederland, TX Sun Terminal & P66 Beaumont Terminal can easily handle this production influx. Big Hill will be restocked by 5 successful bid winners; Atlantic Trading & Marketing at 1MMbbls, Exxon Mobile at 900 Mbbls, Gunvor USA at 600 Mbbls, Macquerie and Sunoco at 300 Mbbls each.
The 2nd installment to restock SPR’s Bill Hill site is September 1-30th. 3.2 MMbbls will be delivered by Macquerie Commodities & Trading at 1.5 MMbbls, Shell and Sunoco at 600 Mbbls each and Atlantic Trading & Marketing at 500 Mbbls.
In addition to the 6.3 MMbbls the SPR is buying to restock their caverns, they have also cancelled 140 MMbbls in mandated sales scheduled from 2024 through 2027. By YE27 the SPR stock should be at 342.3 MMbbls, which is ~50% of the normal SPR stock level of 637 MMbbls between 1990 & 2020. The purchases are not enough to drive prices significantly higher by itself, and there is a long way to go to refill the SPR at this rate. – Kristine Oleszek
Understanding how the commodity markets are influencing the business risk of the assets midstream companies own is a core component of the East Daley process and key to understanding how the market will evolve. This webinar will focus on reviewing the Base Business Risk Indicator (formerly the Treadmill) a key East Daley analysis that ties fundamental commodity analysis to the commercial outcomes of assets across the gas, oil, and NGL sectors. We will review where commodity markets are headed and which assets are capturing value, which are losing value, and pontificate on what could change.
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