The Biden administration has asked Congress to approve $500 million in funds for the modernization of the four sites of the country’s Strategic Petroleum Reserve, suggesting in its request that the SPR is at risk of shortfalls.
In a request to Speaker Nancy Pelosi, the White House’s Office of Management and Budget said that “The proposal would allow the SPR to both maintain operational readiness levels and also alleviate anticipated shortfalls due to supply chain issues, the COVID-19 pandemic, and related schedule delays.”
The U.S. strategic petroleum reserve came under the spotlight this year when President Biden announced his administration will use 180 million barrels of the oil stored in it to release into the market and reduce retail fuel prices.
This was the largest-ever release of oil from the SPR and sparked worry among observers that it could leave the U.S. vulnerable to oil supply shocks. The administration said it would refill the SPR in the fullness of time, more specifically when oil price fell to $72 per barrel or less.
Meanwhile, President Biden said he was ready to release more oil from the SPR even after the 180-million-barrel program ended if need be. The news caused a stir in oil market circles and many saw it as a last-ditch effort by the administration to prop up the Democrat party ahead of the midterms.
The biggest problem with using the SPR as a way of regulating oil prices is that, as a reserve, it would be dangerous to draw too much from it. Last month, Goldman Sachs predicted that the White House could sell another 16 million barrels on top of the 180 million approved for release this year.
This should not make a major difference in inventory levels, but observers are already getting nervous about those levels. At a little over 400 million barrels, the current amount of oil in the SPR is not enough for a month of consumption in case of emergency.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com