The SPR is required to contain at least 90 days of energy supply for the country and currently has 156 days’ worth of energy. This energy supply correlates to a 96 percent full SPR, containing 695 million barrels of crude out of the total 727 barrels of storage. The SPR holds only crude while the Northeast Home Heating Oil Reserve hold one million barrels of ultra-low sulfur distillate, and the Northeast Gasoline Supply Reserve holds another one million barrels of gasoline. Originally put in place for emergency use only, the SPR has adapted many functions in response to domestic needs and global production trends.
This new round of sales is split into two parts. The Bipartisan Budget Act plans to sell 58 million barrels of SPR storage until 2025 for deficit reduction purposes and another 40-50 million barrels for SPR modernization or cycling. The second sales contract comes from the Fixing America’s Surface Transportation Act and approves the sale of 66 million barrels of SPR storage between 2023 and 2025. The SPR can also provide exchanges of crude as loans to requested companies in response to domestic disruptions in crude supply.
Originally created in 1975 in response to the oil embargo of 1973-74 by OPEC, we may see the scope of the SPR storage capacity and sales change drastically given the recent lift of the export ban. Having witnessed US crude oil production double since 2008, rising from 5.0 million barrels per day to near 10 million barrels per day, the export ban was repealed by congress and the President on Friday. This could cause the country to enlarge stock piles of SPR crude to fight fears of dependence on foreign imports.
SPR sales are not intended for regulation of crude and gasoline prices but these rounds of sales will see indirect impacts on both. With a worldwide surplus of oil still expected to continue into 2017, the Transportation Act introduces cheap domestically owned crude for the project. While not a significant amount, this sale will further saturate the US market and keep prices lower in the future when hopefully not experiencing large surpluses.
The Bipartisan Budget Act has further revenue implications not yet historically encountered with the usage of SPR crude. Originally intended to meet the emergency supply shortfalls, this new act appears to be a political decision using the SPR to avoid the need to cut expenditures in other programs or to raise new revenues. Usually in the form of federal fuel taxes, the revenue will alleviate stress on US gasoline prices and help keep them lower, longer. Both acts will have indirect results of forcing national average gasoline prices down for as long as possible.
Both acts were put in place at $65 per barrel WTI crude prices and will not see the gains in revenue as expected. Given the ups and downs in the industry along with recent policy changes, the SPR may see significant changes on top of the already discussed depletion.