Marathon Petroleum Corporation (NYSE:MPC) received a loan of one million barrels of sweet crude oil from the Department of Energy in response to its request for an emergency loan.
The oil company experienced a short-term shortage in the supply of sweet crude, after reducing the production rate of its refinery in Garyville, Louisiana, in the wake of Hurricane Isaac. The company said the refinery did not suffer any major damage, but its operation will continue at a reduced rate until its normal crude supply logistics return. The Garyville Refinery normally produce 646,000 barrel per day.
The one million barrel of sweet crude oil emergency loan will be delivered from the Strategic Petroleum Reserve (SPR) Bayou Choctaw in Loiusiana.
In a statement, Energy Secretary Seteven Chu said the loan provided to Marathon Petroleum Corporation (NYSE:MPC) was part of the broader effort of the federal government to respond to those affected by Hurrican Isaac. He said, “This emergency loan from the Strategic Petroleum Reserve will help ensure Marathon Petroleum Corporation (NYSE:MPC)’s refining operations have the crude oil they need to continue operating.”
According to the Energy Department, Marathon Petroleum agreed to a short-tem contractual agreement. The oil company agreed to return an equal amount of the same quality of oil borrowed from the SPR within three months, plus premium barrels, which is similar to interest.
The Energy Policy and Conservation Act mandated the Energy Department to make loans of crude oil during global oil supply interruptions. The agency used this authority in helping oil companies in the country to continue their operations during emergency-supply disruption brought by natural disasters.
In 2008, Marathon Petroleum’s Midwest Refineries, Placid Oil’s Port Allen Refinery, and Conoco Phillips’ (NYSE:COP) Wood River Refinery received oil loans from energy department after suffering supply disruptions due to Hurricane Gustav.
According to the Energy Department, it will continue to “keep all options on the table to address additional or sustained oil supply issues.”
A report from Reuters cited a comment from Bob McNally, head of The Rapidan Group, a Washington-based consulting firm that the loan of sweet crude oil to Marathon has no significant impact the markets. He said, “This is a small, limited time swap in response to Isaac and should not have a major impact on crude prices, although, as DOE noted, it is keeping the option of a larger release on the table for future or sustained disruptions.”
The report also states the Obama Administration is considering tapping the government’s emergency reserves by September, due to the increasing price of oil brought by the tension regarding Iran’s nuclear program and sanctions on the country by West.
Oil futures in New York increased by $1.50, to $96 per barrel, after the Department of Energy announced the loan to Marathon.