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Washington Has Trouble Refilling The SPR After 220 Million Barrel Draw

January 10, 2023

Washington Has Trouble Refilling The SPR After 220 Million Barrel Draw

  • The DoE has received several offers for February purchases to refill the SPR.
  • For February, the plan was to purchase 3 million barrels, ideally when oil dropped to around $70 per barrel.
  • The rejected bids are prompting speculation that refilling the SPR will be challenging, at best.

After drawing over 221 million barrels of oil from the Strategic Petroleum Reserve (SPR) in 2022, Washington is having a tough time refilling it in the New Year, with the Department of Energy (DoE) rejecting the first offers on the grounds that they failed to benefit taxpayers.

The DoE has by now received several offers for February purchases to refill the SPR, according to both Bloomberg and Reuters. However, those offers have been rejected as too expensive or failing to meet other requirements.

For February, the plan was to purchase 3 million barrels, ideally when oil dropped to around $70 per barrel. This 3-million-barrel pilot program would have given sellers a fixed price for future deliveries and is in contrast to the DoE’s normal operating procedure, which had seen it purchase oil for faster delivery without fixed-price contracts.

Right now, WTI is trading around $75/$76 per barrel, and new data from the Energy Information Administration (EIA) released on Monday shows another 0.8 million barrel draw from the SPR.

According to Bloomberg, citing unnamed sources “familiar with the matter”, the DoE will now postpone its originally planned February purchases and embark on a new approach for fixed-price offers.

“DOE will only select bids that meet the required crude specifications and that are at a price that is a good deal for taxpayers,” the DoE said in a Friday statement carried by news agencies. “Following review of the initial submission, DOE will not be making any award selections for the February delivery window.”

…click on the above link to read the rest…

Zoltan Pozsar: Gold At $3,600 Is Not Improbable If US Refill Reserves With Russian Oil

December 6, 2022

Zoltan Pozsar: Gold At $3,600 Is Not Improbable If US Refill Reserves With Russian Oil

In his latest dispatch, Credit Suisse contributor Zoltan Pozsar shifted focus on his ongoing series about Bretton Woods III where commodities will dictate the new world order.

Instead, the author zeroed in on the depleting Strategic Petroleum Reserve (SPR) of the United States, posing the query of what comes next after the White House shipped its last scheduled release.

“Now that SPR releases are over, production cuts by OPEC+, re-routing [of Russian crude oil from Europe to Asia], and price caps (not to mention the risk of China re-opening due to protests), the question for the U.S, becomes what to do with the SPR? Release more? Refill?” pondered Pozsar.

Back in September, as well, US President Joe Biden’s administration said it is looking at refilling its oil reserves should crude oil prices drop below US$80 a barrel. The prices have traversed the levels below that said mark but the White House moved the price target lower in October after it announced its plan to release 15 million barrels of oil more.

“The Administration is announcing its intent to use SPR repurchases to add to global crude oil demand at times when the price of West Texas Intermediate (WTI) crude oil is at or below about $67 to $72 per barrel,” the White House statement then read.

After the US Department of Energy sold the last batch of crude oil from the historic SPR release, the reserves continue to bleed in the hopes of managing rising inflation and local energy prices. The current level is now below the 400-million barrel-mark, poised to hit a nearly 4-decade low.

…click on the above link to read the rest…

OPEC+ Reportedly Threatening Response To Global Coordinated SPR Release

November 22, 2021

OPEC+ Reportedly Threatening Response To Global Coordinated SPR Release

In an apparent ‘threat’ response to headlines suggesting the Biden administration is attempting to coordinate a global SPR release to push down oil prices (and following reports from Japanese media that the government is preparing to release crude from its strategic stockpiles), the Riyadh-based International Energy Forum said OPEC+ may change its plan for raising oil output if consuming nations sell petroleum reserves or the coronavirus pandemic worsens.

“I anticipate OPEC+ energy ministers will maintain their current plan of adding more supplies to the market gradually,” IEF Secretary-General Joseph McMonigle said in a statement Monday after a meeting with a Japanese foreign ministry official about recent volatility in energy markets.

“However, certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions.”

Critically, this confirms much of what we have written about how any coordinated SPR release (however unlikely that is in and of itself) that any increase in supply will be met by action from OPEC+ moving to not hike outputs as previously planned – thus perhaps helping prices in the short-term, but raising them longer-term.

For now, oil traders are undecided at what this news means…

For now we expect gas prices to drop in the short-term as the lag in the supply-chain from crude to the pump implies some built-in reduction…

But, if OPEC+’s threat response plays out with higher prices, those lower gas prices will prove ‘transitory’.

…click on the above link to read the rest of the article…

U.S. Mandates Biggest Non-Emergency Strategic Oil Selloff

February 13, 2018

U.S. Mandates Biggest Non-Emergency Strategic Oil Selloff

Crude SPR

The budget deal that the U.S. Congress passed and President Donald Trump signed into law last Friday calls for selling 100 million barrels of the Strategic Petroleum Reserve (SPR) by 2027 to help fund the government.

The sale of 100 million barrels of crude oil in the next decade would represent the largest non-emergency sell-off of strategic oil reserves and would equate to some 15 percent of the current stockpiles in the SPR.

The mandate for the SPR sale has drawn criticism because, some experts say, it would blunt the purpose of the strategic reserve to mitigate major global oil supply disruptions or price shocks. Other critics have said that tapping the emergency oil reserve for non-energy needs of the government is short-sighted, and that the SPR should not be used as a “government ATM.”

The Bipartisan Budget Act of 2018 mandates the Secretary of Energy to draw down and sell from the SPR a total of 30 million barrels of crude oil between fiscal years 2022 and 2025; another 35 million barrels during fiscal year 2026; and additional 35 million barrels in fiscal year 2027. In addition, under a budget deal from 2015, the Secretary of Energy is authorized to draw down up to US$350 million worth of crude oil from the SPR in the 2018 fiscal year to use for modernization of the reserve.

The budget deal also reduces the minimum required level in the reserve under which no drawdowns can be made, to 350 million barrels from 450 million barrels.

According to the Congressional Budget Office, the sale of the 100 million barrels from the SPR would generate US$6.36 billion between 2018 and 2027.

As of February 2, 2018, the SPR held a total of 665.1 million barrels of crude oil, while the current storage capacity is 713.5 million barrels, according to the Department of Energy. The average price paid for oil in the Reserve is $29.70 per barrel.

…click on the above link to read the rest of the article…

SPR To Be Used To Raise Cash For US Gov

October 29, 2015

SPR To Be Used To Raise Cash For US Gov

The U.S. Congress is moving on a budget deal to avert a standoff over raising the debt ceiling, at least until 2017. The emerging budget deal calls for some modest increases in government spending, including on defense, along with some tweaks to Social Security and Medicare.

But the budget deal contains a novel way to raise the funds needed to pay for the increase in spending: selling off oil from America’s strategic petroleum reserve (SPR).

The proposal calls for the sale of 58 million barrels of oil from the SPR, spread out over six years between 2018 and 2024. The Congressional Budget Office predicts the move will raise over $5 billion.

Related: Stop Blaming OPEC For Low Prices

The SPR was created in the aftermath of the Arab Oil Embargo in the 1970s, which led to price spikes, fuel rationing and long lines at gasoline stations. The SPR was to be used as a tool to ensure against supply disruptions. Tucked away in salt caverns along the Gulf Coast in Louisiana and Texas, the SPR holds an estimated 695 million barrels of crude.

Congress has traditionally been very reluctant to touch the SPR, and there has been a general consensus in Washington DC that it should only be used in very special circumstances. For example, the SPR was tapped following the Persian Gulf War in 1990-1991 and following damage inflicted upon Gulf of Mexico energy infrastructure from Hurricane Katrina in 2005.

Any effort on behalf of the government to sell outside of these unique situations tended to spark criticism. For instance, President Barack Obama was highly criticized for selling oil in 2011 during the Arab Spring when Libyan oil supplies were knocked offline, with detractors citing no urgent supply need.

…click on the above link to read the rest of the article…

 

Truth takes a hit in the battle over U.S. oil export ban

September 13, 2015

Truth takes a hit in the battle over U.S. oil export ban

They say that the first casualty of war is truth. And, on both sides of the fight over lifting the ban on exports of U.S. crude oil, the truth has already fallen into a coma. The ban was instituted in 1975 in order to make America less subject to swings in international oil supply after suffering the price shock associated with the Arab oil embargo in 1973.

Last week a committee in the U.S. House of Representatives voted to end the ban after a Senate committee voted in July to do the same. A vote by the full House and Senate could be near.

The proponents are careful NOT to say that the United States is energy-independent and so has oil to spare. Such claims made in the past backfired because it is too easy to look this up. Net U.S. imports of crude oil were almost 7 million barrels per day (mbpd) in the week ending September 4. That’s out of about 15.6 mbpd of liquid fuels consumed domestically.*

Yet, it is this state of affairs that the proponents of lifting the export ban label as “abundance.” Here’s the relevant quote from the website of the Domestic Energy Producers Alliance (DEPA), a consortium of U.S. oil drillers: “Thanks to the genius of America’s independent oil and natural gas producers, the world is moving from a concept of ‘resource scarcity’ toward ‘resource abundance.'” (So, the world is not moving toward actualabundance, just the concept of abundance. But, I’m nitpicking.)

In another piece entitled “From Scarcity To Abundance: Why The Strategic Petroleum Reserve Is Unnecessary” the group is more bold, saying that the supposed “abundance” is right here in the United States:

…click on the above link to read the rest of the article…

 

 

 

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