business

Oil-hungry Asian nations pounce on low prices to build stockpiles

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By Martin Abbugao

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Countries like Australia keep their reserves in America, where they have to pay rent and end up paying for the oil many times over.

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It has been recently reported Australia increased it's reserves through a purchase of a quite limited quantity of "oil' from the USA, such oil remaining in the USA. This was said to be taking advantage of the cheap prices at the moment. First, I am not an oil expert and I hope that we can have another comment from someone who knows more but --. Oil, hydrocarbons, crude and refined, do degrade, I'm told, particularly refined oils. Stored oils should be either sold and used or care and attention given to maintain their quality, A costly business including the facilities, tanks, land and necessary expensive apparatus. Australia says its storage facilities are filled now so until new facilities become available overseas "facilities" must be used to have the secure reserves. That admittedly not the best situation . However gogogo's statement is a simplistic view, in my opinion. Australia would not buy it's oil and put it in tanks. Australia has probably acquired an allotment of oil, a specified volume, not a specific tank of oil, and subject to conditions, from the USA stockpile reserves for a price. A good deal (?) for the USA and subject to those conditions no rents or carrying costs.

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The futures market for WTI (West Texas Intermediate) oil went negative (-$37-$40 a barrel) because people were holding future options almost to the expiration date and there were no buyers because there was little to no storage for said oil (must take delivery after oil futures contract ends). Australia must have taken advantage of these prices and somehow used the US Strategic Petroleum Reserve (714 million barrel capacity, 637mb used) to store said oil. They pay a monthly fee for said oil, or just may trade it and make some money since they found storage. They could also load the oil on a ship (fees to transfer on pipeline) and deliver to Australia if that makes sense.

Crude oil can be stored for an almost infinite time. It is sort of funny since Congress refused Trump when he wanted to fill the reserve up because of the negative prices, but Australia was given an OK. The oil had to go somewhere (tanker, tank, pipeline).

Example: Australia buys 2 million barrels of futures contracts for -$37 a barrel (-$74,000,000). They transfer it to the SPR for maybe .50 a barrel (pipeline, high price = $1M). And maybe when selling it pay another $2 a barrel (transfer + fees $4m) = $69M profit + whatever they sell the oil for. SPR payment is in oil however. You easily made at least $100M and people are complaining. The key was finding the storage anywhere when others could not.

..

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Thanks a lot @Badsey, very informative.

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I was just thinking about why the US didn't fill up their own storage themselves just before I got to that part of your post.

Funny indeed.

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