U.S. Energy Secretary, Jennifer Granholm, has announced that refilling the Strategic Petroleum Reserve (SPR) may take several years, and the repurchase of oil sold from the reserve in 2022 may not happen as planned.
This reversal by the Biden administration aimed to buy back oil at lower prices. Still, due to the relatively limited size of the planned repurchases, assessing the impact on the U.S. crude oil market is challenging. Especially with current economic trends and geopolitical challenges.
Granholm explained to a House panel that maintenance at two of the four sites along the Gulf Coast that house the reserve and the government’s sale of 26 million barrels from the reserve, mandated by Congress years ago to aid the federal budget, have made refilling the reserve longer.
The Biden administration had previously sold 180 million barrels of oil from the reserve last year to hold down oil and gasoline prices. The administration initially planned to replenish the reserve by purchasing crude on the open market when prices reached $67 to $72 per barrel.
Although U.S. oil prices have dropped below $70 per barrel, repurchasing oil at that price would net the U.S. government $4.8 billion. However, the Energy Department appears to be keeping the SPR at its lowest level since 1984. The reserve currently contains 372 million barrels, which is almost half as much as its all-time high of 727 million barrels in 2010.
The decision by the government not to buy crude for the SPR could place considerable pressure on oil prices, according to a PVM analyst. However, Granholm’s announcement did not provide an impetus for oil prices to increase, and they may face additional downward pressure.
Friday saw a fall in oil prices, even after the U.S. military conducted airstrikes in eastern Syria against Iranian-backed groups. Those attacks follow an explosive drone strike that killed a U.S. contractor and wounded five U.S. service members and another contractor.
Despite this, the 180 million barrels previously planned for repurchase this year account for less than two days of global oil consumption and just slightly more than two days of worldwide crude oil production.
Furthermore, commercial U.S. crude stocks total 481 million barrels, and OPEC has an additional 2.8 billion in commercial inventory. That equates 18 times the amount the U.S. government no longer plans to repurchase this year.