Mexico initiated the sale of nearly 110 million barrels of oil to the U.S. Strategic Petroleum Reserve, and the United States agreed to the deal without competitive bidding because the Mexicans offered bargain prices and assured supplies, the head of the reserve said yesterday.
Harry Jones, deputy assistant secretary of energy, who negotiated the contract with Petroleos Mexicanos (Pemex), the Mexican state oil company, said the United States would pay $31.80 for a 42-gallon barrel of oil with a guaranteed mix of at least 60 percent light crude.
That price is well below the current weighted average price of just over $34 charged by members of the Organization of Petroleum Exporting Countries, is less than the current price of Alaskan crude, and is below the spot or open market price of about $32. The United States had been buying oil for the reserve on the spot market, which involves bidding for crude that is exported without specific sales contract, but Jones said the United States "has been interested in long-term arrangements" to insulate the oil reserve from market fluctuations.
The Pemex offer, a reflection of the impact on Mexico of a softening worldwide oil market, was also attractive because it allows the United States to suspend shipments and renegotiate the contract if world prices fall during the five-year term of the contract.
Jones, who went to Capitol Hill yesterday to discuss the deal with members of congressional staffs, said in a telephone interview that the Mexican deal was not a precedent-setting "government-to-government contract." He said it is "a commercial contract" with an oil company -- Pemex -- and was negotiated "strictly on a commercial basis."
The contract commits the United States to more than $3 billion in outlays over the next five years. Congressional sources familiar with the 1975 law that established the petroleum reserve said there is no requirement in the law that the oil be purchased through competitive bidding. One staff aide said the objective was to "maximize national security while minimizing cost," and the long-term Mexican deal appears to meet that standard.
The Strategic Petroleum Reserve consists of crude oil bought by the federal government for emergencies and stored in salt caverns in Louisiana and Texas. More than five years after it was created by Congress, the reserve contains less than one-third of its current authorized objective of 750 million barrels, and the Reagan administration is committed to accelerate the acquisition rate.
The current rate of fill is about 400,000 barrels a day. Mexico is to begin Sept. 1 to ship an average of 200,000 barrels a day. Then, from January 1982 to end of August 1986, the reserve will buy 50,000 barrels a day from Pemex.
That is a small fraction of Mexico's average daily export of about 1.3 million barrels. Energy Department officials said that would soften the impact on Mexico if the United States should pull out of the contract and also restrain Mexico's impulse to raise the price of its U.S. sales if world prices rise.
Most oil sales contracts by national oil companies allow the seller to "unilaterally raise prices at any point, even retroactively," Jones said. The Pemex contract allows either party to request a price renegotiation if the world market changes, so the United States could talk the price down still further if the oil glut continues, he said.
Jones said the price was derived by a simple multiplication of the current Mexican selling price by the grade of crude involved. Mexican light crude is selling at $34 a barrel, according to DOE figures, and heavy, less desirable crude at $28.50. He said the oil sent to the United States is to be priced as a mixture of 60 percent light and 40 percent heavy crude, although the contract specifies that the price is firm even if the percentage of light crude increases. Still unclear is the exact method by which the reserve's purchases are to be funded in the coming fiscal year. Reagan administration officials, who told Congress they regard the oil as a commodity that will rise in value and can be sold later, sought nonfederal financing for the reserve. But key members of Congress, determined to ensure that the reserve would be filled, insisted on federal financing.
As a compromise, Congress authorized an "off budget" appropriation of $3.9 billion for oil acquisition in 1982. But a separate bill pending in the Senate would include it as an appropriated item in the budget, which would require a comparable reduction in some other category.