After drawing over 221 million barrels of oil from the Strategic Petroleum Reserve (SPR) in 2022, Washington is having a tough time refilling it in the New Year, with the Department of Energy (DoE) rejecting the first offers on the grounds that they failed to benefit taxpayers.
The DoE has by now received several offers for February purchases to refill the SPR, according to both Bloomberg and Reuters. However, those offers have been rejected as too expensive or failing to meet other requirements.
For February, the plan was to purchase 3 million barrels, ideally when oil dropped to around $70 per barrel. This 3-million-barrel pilot program would have given sellers a fixed price for future deliveries and is in contrast to the DoE’s normal operating procedure, which had seen it purchase oil for faster delivery without fixed-price contracts.
Right now, WTI is trading around $75/$76 per barrel, and new data from the Energy Information Administration (EIA) released on Monday shows another 0.8 million barrel draw from the SPR.
According to Bloomberg, citing unnamed sources “familiar with the matter”, the DoE will now postpone its originally planned February purchases and embark on a new approach for fixed-price offers.
“DOE will only select bids that meet the required crude specifications and that are at a price that is a good deal for taxpayers,” the DoE said in a Friday statement carried by news agencies. “Following review of the initial submission, DOE will not be making any award selections for the February delivery window.”
The rejected bids are prompting speculation that refilling the SPR will be challenging, at best.
The plan to fill the SPR, which has reached its lowest level since 1984, might not be attractive enough to sellers, despite the DoE’s efforts at enticement.
Additionally, the Wall Street Journal speculates that the DoE may not have enough funding to refill the SPR completely. According to WSJ, the DoE has $.48 billion in purchasing power. At the desired $70 per barrel, that would give it enough funding to refill the SPR to 440 million barrels.
By Charles Kennedy for Oilprice.com
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