A drop in crude oil prices has put the U.S. back in the market for replenishing the Strategic Petroleum Reserve after selling off a record amount of crude from the stockpile in 2022.
A little more than a month ago the Department of Energy canceled the purchase of about 3 million barrels of oil for the SPR due to prices rising above what had been the government’s $79 per barrel target for West Texas Intermediate at which it wanted to buy oil back.
On Tuesday the DOE said it is seeking up to 3.3. million barrel for October delivery, a move that could be canceled if oil prices rise again. The DOE also slightly raised the price at which it wants to buy the oil back.
Here are facts about the SPR and efforts to put oil back in.
WHAT IS THE SPR?
It is the world’s largest emergency oil stash. Former President Gerald Ford created the SPR in 1975 after the Arab oil embargo spiked gasoline prices and damaged the economy. Presidents have tapped the stockpile to calm oil markets during war involving oil producing countries or when hurricanes hit oil infrastructure along the U.S. Gulf of Mexico. The oil is held in heavily-guarded underground caverns at four sites on the Texas and Louisiana coasts.
HOW MUCH SPR OIL WAS SOLD IN 2022?
In 2022, the administration of President Joe Biden announced a sale of 180 million barrels of oil over six months from the reserve, the largest ever SPR sale, in an attempt to lower gasoline prices after Russia invaded Ukraine. The DOE also conducted a sale of 38 million barrels in 2022 that had been mandated by Congress.
WHAT PRICE DOES THE U.S. WANT TO BUY SPR OIL ?
The DOE said on Tuesday it would buy oil back at up to $79.99 a barrel, nearly one dollar above the previous target price.
Still, purchases could be limited by the administration’s concern about doing anything to boost gasoline prices ahead of the Nov. 5 election. “Although the DOE appears to be returning to the market in response to recent oil price weakness, we would suggest that White House pump price sensitivity has not abated,” ClearView Energy said in a note to clients.
The West Texas Intermediate oil price was about $78.50 a barrel on Tuesday, as weak U.S. jobs data and economic uncertainty outweighed concerns about the Israel-Hamas war widening in the Middle East. But prices could rise quickly as peak U.S. summer driving season nears.
The administration says it sold the 180 million barrels at an average of about $95 a barrel.
HOW MUCH IS COMING BACK?
The administration has so far bought back about 32.3 million barrels of domestically-produced crude oil since the 180 million barrel sale, it says. The DOE says it has also sped up the return of nearly 4 million barrels to the SPR from loans to oil companies.
CURRENT SPR LEVEL
The reserve currently holds 367.2 million barrels, nearly 60% of which is sour crude, or relatively high sulfur oil which many U.S. refineries are engineered to process.
The 2022 sales sank the SPR to the lowest level in about 40 years. That angered some Republicans who accused the Democratic administration of leaving the U.S. with a thin supply buffer to respond to a future crisis. The most oil it ever held was nearly 727 million barrels in 2009.
The administration says it has a three-pronged strategy to return oil to the reserve. That includes buying back oil, the return of oil loaned from the SPR to companies, and the cancellation of congressionally mandated sales of 140 million barrels through 2027. Both Democratic and Republican lawmakers had voted for those sales to pay for government programs.
The U.S., which is producing oil at record volumes with more increases expected this year, has more crude in the SPR than required as a member of the Paris-based International Energy Agency, the West’s energy watchdog. Under the agreement, the U.S. is required to hold 90 days’ worth of net petroleum imports.
(Reporting by Timothy Gardner, Editing by Nick Zieminski and Marguerita Choy)