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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: BigBull who wrote (72713)9/8/2000 1:58:11 PM
From: Meridian  Read Replies (1) of 95453
 
Theoretics of SPR threat - seems that the government would have to sell oil to US refiners at a discount in order to induce them to take shipments. If there were no discount, they would be indifferent as to whether they purchased Bonny Light from Nigeria or WTI for the SPR.

If spot is $34.00/bbl they could sell $1000 worth of oil to a US refiner at a discount of $28.50/bbl. So the refiner would receive 35 barrels, instead of 29.5 barrels had the refiner paid the full price.

The refiner would then reap huge margins during the 4th and 1st quarters, because gas and heating oil would likely remain high, but their feedstock costs would fall.

In September 2001, the refiner would agree to replace 35 barrels + another 5.5 barrels in order to address the discounted oil he got the preceding year. Thus, the government could alleviate the short-term supply crunch this winter, AND it could increase the quantity of oil in the SPR next year.

Does this sound reasonable?

However, the caveat is this: refiners would have to believe that spot prices in Sept. 2001 will be lower than the $34.00/barrel they could get now. If spot prices were higher, they would lose $$$.

Just thinking outside the envelope.
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