A U.S. plan to help control global oil prices with a swap of millions of barrels of oil from the Strategic Petroleum Reserve depends on energy companies returning oil back to the facility with high premiums in the form of additional barrels, which some traders said could deter participation. The exchange is part of a wider agreement by countries in the International Energy Agency to release 400 million barrels of crude from reserves in an effort to tame prices that have risen during the U.S.-Israeli war with Iran. Global oil prices closed above $103 per barrel on Tuesday as the Strait of Hormuz remained mostly shut to oil, gas and fertilizer transit.
Here are details of the SPR exchange:
HOW MUCH OIL IS IN THE FIRST EXCHANGE?
The Department of Energy took bids from energy companies until late Tuesday for initial swaps totaling up to 86 million barrels of oil, the results of which are expected to be published in coming days. The U.S. said last week exchanges from the SPR would eventually total 172 million barrels and oil companies would return about 200 million barrels including the premium.
HOW MUCH IS THE INTEREST?
The structure of the swap was unusual in that it required companies to pay back anywhere from 18% to 22% interest, or premium, in the form of oil. Bidders may offer to pay back even more oil in hopes of winning contracts. The high interest rate came amid pressure to keep the reserve, which currently holds 415 million barrels or less than 60% of its capacity. President Donald Trump vowed on the first day of his second term to fill the SPR, but Congress has not provided enough money to do so.
The highest rate of 22% will be for bidders to take sour, or high sulfur crude that many U.S. refineries are geared to process, and return the loan to the SPR with sweet crude that many domestic companies produce.
HOW WILL IT WORK?
All the loaned oil is expected to be delivered to energy companies from the SPR anytime from April to May.
The DOE offered to loan 42 million barrels of sour, or crude high in sulfur, from its Bryan Mound, Texas site to be returned with interest. It offered 34 million barrels of sour from West Hackberry and 10 million barrels from the Bayou Choctaw, both in Louisiana.
All the oil is to be returned with interest in tranches from November 1, 2026 to September 30, 2028.
WILL ALL THE OIL BE LOANED?
There’s no guarantee that there will be bids for all the oil the U.S. is offering or that all the bids will be accepted. Some traders Reuters spoke to said that conditions of the loan with high interest rates could reduce participation.
(Reporting by Timothy Gardner; Editing by Lincoln Feast.)