The United States is currently undertaking the task of buying oil to replenish its Strategic Petroleum Reserve (SPR) after a significant drawdown in 2022, a year marked by record sales from the stockpile. This replenishment process coincides with the completion of maintenance at one of the SPR’s sites. However, the speed of this restocking effort may be influenced by the fluctuating prices of crude oil, which have been on an upward trajectory.
In a recent announcement, the Department of Energy disclosed its plans to solicit bids for 3 million barrels of domestically-produced crude oil, designated for the Bayou Choctaw storage site in Louisiana, recently out of maintenance. The procurement aims for the oil to be delivered to the SPR site in the months of August and September, signaling a proactive step towards bolstering the national oil reserves.
The Strategic Petroleum Reserve, the world’s largest emergency oil stockpile, was established in 1975 by President Gerald Ford following the oil supply disruptions caused by the Arab oil embargo. This embargo had a profound impact on gasoline prices and the overall economy, prompting the U.S. government to create a reserve that could provide a cushion against future supply shocks. Since its inception, the SPR has been a pivotal asset in stabilizing oil markets during periods of significant supply disruptions, such as wars or natural disasters affecting the oil infrastructure in the Gulf of Mexico. The reserve’s oil is stored in vast underground caverns located at four strategic sites along the coasts of Texas and Louisiana, ensuring its security and accessibility in times of need.
In an unprecedented move, the administration under President Joe Biden in 2022 announced the sale of 180 million barrels of oil from the SPR over a six-month period, aiming to mitigate the rising gasoline prices triggered by Russia’s invasion of Ukraine. This sale marked the largest in the history of the SPR. In addition to this, the Department of Energy (DOE) executed a sale of 38 million barrels as mandated by Congress, further depleting the reserve’s stockpile.
The administration expressed its desire to repurchase oil for the SPR at a price of $79 per barrel or lower, a challenging endeavor given the prevailing market conditions. The average sale price of the 180 million barrels was around $95 per barrel. The West Texas Intermediate (WTI) crude price, which stood at approximately $80.70 per barrel, poses a potential obstacle to the repurchase plans, especially in light of recent market dynamics, including Ukrainian attacks on Russian refineries and forecasts by the International Energy Agency indicating a tighter oil supply.
Regarding the replenishment of the SPR, the administration has successfully repurchased approximately 29.61 million barrels of domestically-produced crude oil following the 2022 sales. Furthermore, the DOE has expedited the return of nearly 4 million barrels to the SPR from loans to oil companies. However, the pace of these buybacks has been affected by scheduled maintenance activities at two of the four SPR sites. Officials have indicated that a rapid reacquisition of large volumes of oil could inadvertently drive up oil and gasoline prices, particularly as the nation approaches the presidential election on November 5. Energy Secretary Jennifer Granholm emphasized on February 21 that the United States is proceeding cautiously to avoid any actions that could lead to a reduction in market supply when prices are high.
Currently, the SPR holds 361.6 million barrels of oil, with nearly 60% comprising sour crude—a type of oil with higher sulfur content that is well-suited for processing by many U.S. refineries. This quantity represents a significant decrease from the reserve’s peak capacity of nearly 727 million barrels in 2009. The substantial sales in 2022 have brought the SPR to its lowest level in about four decades, a situation that has drawn criticism from some Republican leaders. They have accused the Democratic administration of compromising the nation’s energy security by depleting the strategic reserve to a precarious level.
In response to these concerns, the administration has outlined a three-pronged strategy to rejuvenate the SPR. This strategy includes the direct purchase of oil, the return of oil previously loaned from the SPR to companies, and the cancellation of congressionally mandated sales amounting to 140 million barrels of SPR oil through 2027. This decision to cancel the sales was supported by both Democratic and Republican legislators, initially intended to finance various government programs.
The United States is currently experiencing record levels of oil production, with expectations of continued growth in the coming year. This surge in domestic oil production has enabled the country to maintain a larger reserve of crude in the SPR than what is mandated by the International Energy Agency (IEA), based in Paris. As a member of the IEA, the U.S. is required to hold a reserve equivalent to 90 days’ worth of net petroleum imports. With its current stockpile, the U.S. not only meets but exceeds this international obligation, demonstrating a strong commitment to maintaining energy security and stability in the global oil market.
