In late 2021, President Biden ordered the release of 50 million barrels of crude from the Strategic Petroleum Reserve to bring down the price of gasoline. Then, in the spring of the next year, he ordered the release of another 130 million barrels.
Prices at the pump fell between $0.17 and $0.42 per gallon. With the massive withdrawals and previously scheduled mandatory sales, the SPR shed 270 million barrels and fell to the lowest in 40 years.
Now that prices have stabilized, it should be the right time to start refilling the reserve that is not called strategic for nothing. While the U.S. no longer needs a massive cushion against a potential repeat of the 1973 Arab oil embargo, it does need a guaranteed crude oil supply for a set period of time that, per the IEA, is best set at around 90 days of consumption. After the withdrawals, the SPR fell to 20 days of consumption.
Indeed, the Department of Energy has made it a habit to announce a solicitation for a few million barrels of oil every now and then when West Texas Intermediate falls below $75 per barrel. Some of these solicitations have even led to purchases, usually at the rate of 3 million barrels.
While modest, the rate of announced purchases is understandable: every time the DoE announces it even plans to organize a solicitation for the SPR refill, prices immediately tick up. The department earlier this year set itself a price range of between $67 and $72 per barrel and has tried to stick to it, arguing the federal government will make a profit on the massive withdrawals of 2022 as that oil was sold at higher prices.
So far this year, the DoE has bought less than 20 million barrels of oil to refill the strategic petroleum reserve. An unnamed source close to the department told Reuters in June that plans were to buy back some 12 million barrels by the end of the year. Then, in October, the Department of Energy said it planned to buy 6 million barrels by January 2024, suggesting it was behind on its 12-million-barrel target.
The department has also been returning oil to the SPR after essentially lending some to oil companies. In early December, it said it had struck an agreement with those companies to return 4 million barrels by February. Over the first eleven months of 2023, 9 million barrels were bought back or returned to the SPR, Reuters reported in early December.
Then, in mid-December, the Department of Energy said it had struck another 2-million-barrel purchase deal in mid-December, and another, for 3 million barrels, announced just this week. This has brought the total repurchased SPR oil to 14 million barrels and 2 million barrels above the 2023 target.
Yet, it is nowhere near to constituting an actual refill of the strategic reserve. For that, the federal government has not only to keep buying oil at a relatively steady pace but also to stop selling oil from the SPR—an activity mandated by Congress. The DoE managed to get the sale of 140 million barrels over 2023 to 2027 cancelled, but it will probably need more cancellations to return the SPR anywhere near its previous levels.
Some have argued that the SPR is no longer really necessary. The United States is the largest producer of crude oil, the argument goes, and it is no longer vitally dependent on Middle Eastern oil imports.
Yet the Energy Information Administration’s weekly petroleum status updates show that the U.S. has remained a steady importer at a rate of about 6-6.7 million barrels daily. Not all of these barrels come from the Middle East, of course. In fact, less than half a million barrels daily come from that region—Saudi Arabia and Iraq, and neither has any intention of turning the taps off. Even so, disruptions happen. Prices change. It’s a good idea to have a bit of a supply buffer in case of such a disruption.
By Irina Slav for Oilprice.com
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