Oil Release-Explainer

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Oil Release-Explainer The Associated Press 9/23/00 12:41 PM

The Energy Department is releasing 30 million barrels of oil from the government's emergency reserve. How the release, technically called a "swap," will work:

--Bids for the oil will be solicited Monday, offering 30 million barrels in exchange for a future amount of oil. The bids must be in by Friday.

--The department negotiates and selects the best bids, those that provide the best return for the government in the form of additional future oil and other factors. Successful bids will be announced Oct. 2.

--Winning bidders must arrange for transportation and must take the oil during November.

--The oil will come from three Strategic Petroleum Reserve repositories on the Gulf Coast. Each repository is capable of delivering between 500,000 and 1 million barrels a day.

--Winning bidders must return a like amount of oil, plus a premium amount to be negotiated, to the government reserve at some time during 2001, when markets are expected to be less tight and prices lower.

No money will exchange hands because the winning bidders essentially will "borrow" the oil from the government and sell it in the marketplace at current prices.

The companies will make a profit because -- assuming prices will go down -- the oil they return to the reserve will be less valuable than the oil they took out and sold. The government, in turn, will obtain additional "bonus" oil resulting in an increase of the reserve's current 571 million-barrel inventory.

http://www.nj.com/newsflash/index.ssf?/cgi-free/getstory_ssf.cgi?a0551_BC_OilRelease-Explainer&&news&newsflash-washington

-- Martin Thompson (mthom1927@aol.com), September 23, 2000


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