The Central Energy Fund (CEF), the holding company of the Strategic Fuel Fund (SFF) has on Thursday, defended the sale of SA oil reserves, saying the country’s fuel security hasn’t been compromised as the government still has access to reserves.
This announcement was made in reaction to the alleged selling off of 10 million barrels of SA oil reserves by the department of Energy, leaving the country with just 300,000 barrels in stock which could barely be enough for the country in the face of emergency.
“We wish to reiterate that the integrity of the strategic stocks is secured and that the group will be able to respond to any challenge should it arise,” CEF director Tseliso Maqubela said.
The statement by CEF exposed that SA will have to buy the fuel back if need be. If the stocks that were sold in December had to be replaced at current oil prices, the SFF would make a loss of $220m.
The stocks — about 10-million barrels — were sold in December for about $28 a barrel and the State Fuel Fund said the sale of SA oil reserves was a “rotation” of old stock, and was something that had happened in the past, and didn’t need permission from Treasury.
Maqubela went on to argue that fuel security has not been compromised but that the country could rather now exercise the right of first refusal over a larger quantity of crude than it sold originally and so has enhanced its fuel security.
“It should also be noted that … the country had 21 days reserves of strategic stocks,” he said.
“After the December 2015 rotation, the country now has access to 90 days reserves, which is 30 days more than the required volumes.”
Meanwhile, the SFF and Energy Minister Tina Joemat-Pettersson described SA oil reserves sale as a “rotation” — which they say is necessary as crude oil stocks deteriorate over time. However, they sold at the bottom of the price cycle, the “rotation” is unlikely to have a neutral effect on the balance sheet.
Though SFF is yet to make public, its successful buyer, it disclosed that three large global oil traders were invited to participate in a closed tender. They are Dutch firm Vitol, which partnered with Black Economic Empowerment (BEE) firm Vesquin; Swiss firm Glencore, which partnered with Venus Trade; and Nigerian company Taleveras.
Vitol is a partner in local firm Burgan Oil, which according to BDlive, is constructing a new fuel storage facility for finished products in the Cape Town. It’s also a partner in Burgan is Thebe Investments, which is 47% owned by the Batho Batho Trust, of which the sole beneficiary is the ANC.
It partnered with Vesquin which it owns together with BEE firm Elderberry, owned by energy entrepreneur Simphiwe Mehlomakulu.
Meanwhile, the successful buyer of the these oil stands the chance of gaining a lot from the so-called contango, as it now holds crude bought at a far lower price than the expected.
However, while the market bets on a rising oil price, the SFF is betting that it will fall below even the $28 at which it sold.
Fuel prices once again went down below $50 a barrel as investors worried higher prices could reactivate shuttered crude output, adding to global oversupply. But SFF’s acting CEO Sibusiso Gamede said he cares less about the rise and fall of the oil price .
“The problems of overproduction by Saudi Arabia and Iran will again lead to over production and a decline in prices. This presents SFF with further market opportunities to optimise value in a low crude oil price market environment.” he said.
Brent crude fell 36 US cents to $49.23, retreating further from the previous session’s $50.51 peak. US crude dropped 35 US cents to $49.13 a barrel after touching $50.21 on Thursday.