US to Take Years to Refill Its Strategic Petroleum Reserve

Refilling the U.S. Strategic Petroleum Reserve may take years, U.S. Energy Secretary Jennifer Granholm said this week, reversing plans the Biden administration announced late last year to repurchase at lower prices oil it sold from the reserve in 2022.

However, the relatively limited size of the planned repurchases in proportion to global oil demand makes assessing the impact on U.S. crude oil markets somewhat difficult—especially amid current global economic trends and geopolitical challenges.

Granholm told a House panel Thursday that the U.S. likely would not repurchase all the oil it had previously sold from the reserve this year, partly because of maintenance at two of the four sites along the Gulf Coast that house the reserve.

In addition, the Energy Department said last month it will move forward with selling 26 million barrels from the reserve because Congress mandated the sale years ago to aid the federal budget. Refilling the reserve will take longer as a result.

Tapping the SPR

The Biden Administration, in an attempt to hold down oil and gasoline prices, sold 180 million barrels from the reserve last year for an average of $96.25 per barrel.

The administration initially had planned to replenish the reserve by buying back crude on the open market when prices reached $67 to $72 per barrel. It reiterated those plans as recently as December.

U.S. oil prices, based on the country’s West Texas Intermediate (WTI) crude benchmark, have plunged below $70 per barrel from $80 per barrel in the past two weeks amid rising uncertainty in the U.S. banking system. Repurchasing the oil at $70 per barrel would net the U.S. government $4.8 billion.

Nevertheless, the Energy Department appears to be maintaining the SPR at its lowest level since 1984. The reserve currently contains 372 million barrels—almost half as much as its all-time high of 727 million barrels in 2010.

Economic Concerns Take Precedence

One analyst thinks the government’s decision will place considerable pressure on oil prices.

“The lack of crude buying for the SPR represents a major blow to the oil demand outlook,” said Stephen Brennock, an analyst with oil broker PVM.

Certainly, Granholm’s announcement didn’t provide an impetus for oil prices to increase. Still, they possibly face more substantial hurdles.

Oil prices steadily have dropped since peaking near $120 per barrel last June as global central banks raised interest rates to reduce inflation. Concern about widespread economic downturns have accompanied those rate hikes.

Friday, oil prices fell even after the U.S. military conducted airstrikes in eastern Syria against Iranian-backed groups after an explosive drone strike killed a U.S. contractor and wounded five U.S. service members as well as another contractor.

Typically, heightened turmoil in the Middle East places upward pressure on oil prices because it potentially threatens global oil supplies—particularly amid ongoing supply disruptions from the Russia/Ukraine war.

Yet WTI prices fell as much as 3.7% to $67.20 for May delivery, with liquidity concerns about European banks overriding global supply concerns.

Decision’s Scope May Have Limited Impact

As for any additional downward price pressure Granholm’s announcement this week may contribute, the 180 million barrels the U.S. government previously had planned to repurchase this year accounts for slightly less than just two days of global oil consumption.

That amount also represents just slightly more than two days of worldwide crude oil production.

Meanwhile, commercial U.S. crude stocks currently total 481 million barrels, and OPEC has an additional 2.8 billion in commercial inventory. Those combined amounts equate to 18 times the amount the U.S. government no longer plans to repurchase this year.