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Robert Rapier

Robert Rapier

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Biden’s SPR Gamble Sparks Debate Over U.S. Energy Security

  • The SPR was aggressively depleted by 291 million barrels during Biden's first two and a half years, primarily in response to rising gasoline prices and the Ukraine crisis.
  • Critics argue this depletion compromises U.S. energy security, while supporters claim decreased dependency on imports due to domestic production.
  • The administration plans to repurchase oil "as market conditions allow," but election-year politics may limit significant replenishment efforts.
Biden

The United States established its Strategic Petroleum Reserve (SPR) in the wake of the 1973–1974 oil embargo that disrupted oil imports and drove oil prices much higher.

The SPR consists primarily of several large underground salt caverns for storage located along the Gulf Coast in Texas and Louisiana. These sites were chosen based on their geologic stability and ability to safely store hundreds of millions of barrels of crude oil. The SPR has the capacity to hold enough crude oil to help mitigate the impact of severe supply interruptions.

The President of the United States has the authority to order the release of SPR oil in response to energy supply emergencies or to meet obligations under the International Energy Program. However, these emergencies have often been broadly interpreted to mean rising gasoline prices, especially in election years.

President Biden inherited an SPR that contained 638 million barrels. However, first in response to rising gasoline prices, and then as a result of Russia’s invasion of Ukraine, President Biden announced the most aggressive SPR drawdown in history. During his first two and a half years in office, the SPR was drawn down by 291 million barrels, to the lowest level since 1983.

Related: Europe’s Secret Weapon In Its Energy War With Russia

Critics charge that this puts U.S. energy security at risk. Others counter that because the U.S. is now the world’s top oil producer, we are less dependent on oil imports. There is an element of truth to this argument, in that net U.S. imports have fallen.

However, that argument requires context. The U.S. exports a lot of oil, because the oil we produce isn’t a great economic fit for U.S. refiners. Therefore, we export a lot of the oil we produce domestically, and we import a lot of cheaper foreign oil. Thus, the loss of oil imports would cause some disruptions, even though our net petroleum imports have fallen sharply in recent years.

The Biden Administration has replaced some of the oil that was removed from the SPR and has announced that it would repurchase more “as market conditions allow.” However, this is an election year. One thing an incumbent president abhors is rising gasoline prices during election years. Therefore, I don’t believe we will see anything more than token purchases for the rest of the year.

One of my 2024 energy predictions was that the Biden Administration wouldn’t replace more than 10% of the oil that was removed from the SPR. So far, the administration has only replaced 4% of what was removed.

Related: 2 Companies That Could Help Europe Win Its Energy War With Russia

It won’t be long before refiners start to transition to summer gasoline blends. That will cause gasoline prices to rise, as it does every spring. Even if token SPR purchases are still going on at that time, they will probably be suspended then so they won’t contribute any additional upward pressure on gasoline prices.

There is certainly risk to this strategy. If geopolitical events disrupt the oil markets, it will look foolhardy in hindsight, and there will likely be repercussions. However, if the oil markets have an uneventful year, there may be no political consequences.

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By Robert Rapier 

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  • Mamdouh Salameh on March 12 2024 said:
    Having failed to persuade OPEC+ to raise oil production in response to rising gasoline prices in the United States and the Ukraine conflict, President Biden withdrew 291 million barrels (mb) from the US strategic petroleum reserve (SPR) or almost 46% during his first two and a half years. This amounts to 319,079 barrels a day (b/d) during that period.

    These withdrawals have hardly had any noticeable impact on prices but they have compromised US energy security at a time of rising tension with China and Russia over Taiwan and the Ukraine conflict respectively.

    It was reported that the US Department of Energy (DoE) only managed to return 8.0 mb only or 2.75% out of the 291 mb it withdrew from the SPR during the whole of 2023 for two reasons. One is because the DoE wanted to refill the SPR at prices ranging from $68-$71 a barrel. Second because there is no free oil available for sale in a tight market.

    However, what has been keeping oil prices relatively low despite solid market fundamentals and robust demand is deliberate market manipulations orchestrated by the United States and involving oil traders, speculators and the IEA aimed at depressing oil prices for the benefit of the US economy and the refilling of the SPR

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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