* US sells all SPR crude on offer, indicating high demand
* Valero, Vitol, Shell lead bidding for SPR crude
* Average price for SPR barrels was $107.19
* Successful auction may portend more releases: JP Morgan
* (Recasts, adding comment, price reactions and byline)
By Joshua Schneyer and Ayesha Rascoe
NEW YORK/WASHINGTON, July 1 (Reuters) - The United States sold more than 30 million barrels of crude from the Strategic Petroleum Reserve in its largest-ever auction of emergency supplies on Friday, naming independent refiner Valero the top buyer.
The Department of Energy listed winning bidders for 4.2 percent of the 727 million barrels it keeps in salt caverns in Texas and Louisiana to respond to supply disruptions. The oil should be released in July or August, it said.
In an indication of high demand for light, sweet crude, favored for gasoline and diesel production, the DOE said all of the oil on offer had been sold.
“It seems to have been oversubscribed, which is a good sign,” said Edward Meir, senior analyst at MF Global in New York.
The releases are meant to respond to a cut in exports from war-torn Libya since late February. The International Energy Agency, a 28-nation group representing most of the world’s top oil consumers, announced on June 23 plans to release 60 million barrels of crude and oil products globally, with U.S. supplies making up around half of the total.
The IEA has said it could release more oil later if markets remain tight. Other regions including Europe also began to tender additional supplies this week.
Overall, 15 companies committed to pay $3.3 billion for 30.6 million barrels on offer from the SPR, preliminary results showed. Final results are due by July 11, but are unlikely to differ much from those released on Friday, a DOE source said.
The average successful bid was $107.19 per barrel, about $3 below European benchmark Brent oil LCOc1 prices on Friday.
The top buyer is leading U.S. independent refiner Valero (VLO.N), which won 6.9 million barrels. Other buyers included integrated oil major Shell (RDSa.L), Swiss-Dutch oil trading giant Vitol [VITOLV.UL], and Wall Street bank JP Morgan Chase (JPM.N), according to preliminary results.
For a factbox on the bidders, click here: [ID:nN1E7600RX]
LITTLE PRICE REACTION
“The SPR (oil) to be released from this bidding will increase supply and that will put a little price cap on the upside, but that will be quickly digested and there should be little impact on demand,” said Tom Knight, a trader at Truman Arnold in Texarkana, Texas.
Brent for August delivery LCOQ1 fell on Friday, finishing down 71 cents at $111.77 a barrel.
In U.S. cash crude markets — a closer gauge of physical crude demand — premiums weakened slightly. Light Louisiana Sweet LLS- premiums declined 45 cents, selling for $13 a barrel over WTI WTC-, the U.S. light, sweet benchmark.
On average, the SPR barrels will be sold for a discount of $5.58 a barrel to LLS prices, JP Morgan analysts said in a research note, adding that the crude should enter physical markets in late August.
Another analyst said markets had already factored the SPR sales into world oil prices.
“In the context of the U.S. market, the 30 million barrels to be released is not such a big volume,” said Gene McGillian of Tradition Energy in Connecticut.
MAKING UP FOR LOST SUPPLY
Increasing world oil demand, coupled with supply disruptions in Libya and other Middle East unrest, boosted Brent prices to more than $125 a barrel by the end of April, threatening a fragile global economic recovery.
This week’s successful SPR auction “increases the possibility of another tender in the coming months as the market has readily absorbed the barrels on offer”, JP Morgan said.
The bank added that “these additional light sweet crude supplies will help alleviate the tightness in the Atlantic Basin crude market”.
U.S. and IEA officials have said they will reassess the market in mid-July to determine whether more releases are warranted.
In a controversial move, IEA members agreed to tap strategic reserves after the Organization of the Petroleum Exporting Countries (OPEC) opted for no production increase when it met on June 8.
Top OPEC producer Saudi Arabia, however, has pledged to boost its own output. Most Saudi crude is heavier and more acidic than the SPR crude.
“People seem to want the lighter oil and it should now pressure down Brent, at least more than U.S. crude. Barrels that were going to be imported to the United States from West Africa should be diverted toward Europe,” MF Global’s Meir said.
Charles Ebinger, senior fellow at the Brookings Institution, said it was not surprising that companies snapped up the high-quality reserve oil, but the Obama administration’s decision to release the crude set a bad precedent.
With unrest still spreading in the Middle East, it would have been more prudent to save the reserves for a major emergency, he said.
It was a “good business decision for the oil companies, not necessarily a good political decision for the United States”, Ebinger said.
OIL FOR STORAGE?
The new volumes could slash U.S. demand for imported crude and keep a lid on world oil prices in the short term. A trader said the country usually imported around 800,000 barrels a day of sweet crude into the Gulf Coast.
With an estimated extra 1 million bpd of similar crude to be released, some of the surplus is likely to be stored in onshore tanks or offshore tankers, he said.
U.S. oil industry group API, which has also criticized the administration’s release of emergency reserves, said some buyers may plan to store the crude instead of processing it right away.
“Our inventories are in good shape and our markets are well supplied here in the United States,” said Rayola Dougher, an API economic adviser in Washington.
“It may be that our refiners are buying it to store up.”
San Antonio, Texas-based refiner Valero bid for 6.9 million barrels of crude at prices between $105.62 and $109.76 per barrel, according to the DOE website. (Additional reporting by Roberta Rampton, David Sheppard, Bruce Nichols, Gene Ramos, Jeffrey Kerr and Robert Gibbons; Editing by Dale Hudson and Sofina Mirza-Reid)