Despite indicating they would refill the Strategic Petroleum Reserve (SPR) by the end of this year, the Department of Energy has now canceled solicitations offered last month.
Citing rising oil prices, the DOE said, “We will not award the current solicitations for the Bayou Choctaw SPR site and will solicit available capacity as market conditions allow.” Three million barrels of oil had been slated for delivery to the Bayou Choctaw SPR site in August and September.
The SPR is the world’s largest supply of emergency crude oil. It was established primarily to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the United States under the international energy program.
The SPR is maintained by the U.S. DOE and its oil stocks are stored in huge underground salt caverns at four sites along the coastline of the Gulf of Mexico. The size of the SPR (authorized storage capacity of 714 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy.
Following Russia’s invasion of Ukraine, the Biden Administration made the largest withdrawal in SPR history to curb the oil price spikes that happened in the wake of the invasion. The DOE has consistently promised to refill the SPR as market conditions allow.
One of the 2024 energy predictions I made in January had been “The Biden Administration won’t replace more than 10% of the oil removed from the SPR since Biden was inaugurated.”
The reasoning behind the prediction was that in election years, presidents have tended to withdraw from the SPR to prevent rising oil prices leading up to the election.
My prediction concluded with “By the time the summer driving season and the change to summer gasoline blends arrives in May, I think the SPR purchases will be suspended.”
The DOE added, “As always, we monitor market dynamics to remain nimble and innovative in our successful replenishment approach to protect this critical national security asset.” However, with production cuts in Saudi Arabia and Russia starting to impact the market, it is unlikely that there will be significant oil price relief ahead of the election. Thus, we will likely go into the election with the SPR at the current significantly depleted level.
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