Over the past week, multiple stories have appeared in the media with headline phrases like “The U.S. is refilling the Strategic Petroleum Reserves.” However, this is misleading at best.
To recap, the SPR is maintained by the U.S. Department of Energy, 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.
After Russia invaded Ukraine, the Biden Administration made the largest withdrawal in SPR history in an effort to curb the oil price spikes that happened in the wake of the invasion. Between Biden’s inauguration in 2021 and mid-2023, 291 million barrels were sold from the SPR. That 46% reduction took SPR volumes to a level last seen in 1983.
Since hitting a low level of 347 million barrels in June 2023, the Biden Administration has returned about 14 million barrels of the 291 million removed (4.8%).
The DOE has consistently promised to refill the SPR as market conditions allow. Although previously indicating they would refill the Strategic Petroleum Reserve (SPR) by the end of 2024, the DOE recently canceled solicitations.
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.
Despite the indications that the administration would refill the SPR this year, one of my 2024 energy sector predictions was “The Biden Administration won’t replace more than 10% of the oil removed from the SPR since Biden was inaugurated.” The reason for the prediction was that the Biden Administration wouldn’t want to drive up oil prices ahead of the election.
Now, the DOE has announced that it is seeking up to 3.3 million barrels for October delivery, but that could be canceled if oil prices rise again. The DOE also made a slight upward adjustment to the price it would be willing to pay for this oil, up to $79.99 a barrel (about a dollar a barrel higher than before).
Since nearly 300 million barrels were removed from the SPR, these small purchases would hardly qualify as “refilling the SPR.” Further, as they did previously, the administration could once again cancel the SPR solicitations.
My January prediction would require a total purchase of 29.1 million to reach 10% of what was depleted. Thus far only 14 million barrels have been purchased, and if the DOE does purchase another 3.3 million barrels, that would push the purchases to only 17.3 million barrels by October — just ahead of the election.
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