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In the previous year, the Biden administration executed the largest sale ever from the Strategic Petroleum Reserve (SPR), totaling 180 million barrels. This move aimed to stabilize surging oil prices following Russia’s invasion of Ukraine. Initially targeting a refill of the reserve at $70 per barrel, the administration later revised its stance, expressing a willingness to sign purchase contracts at $79 per barrel.
Volume of Petroleum Reserve
Despite WTI trading in the low to mid-80s and the potential for further price increases due to supply constraints, the volume of oil in the reserve’s underground salt caverns in Texas and Louisiana has continued to decline, reaching levels not seen since 1983. As of October 27, the reserve held only 351 million barrels, prompting concerns about the nation’s energy security. Some industry observers accuse the administration of delaying necessary actions.
Energy fellow Ed Hirs criticized the lack of urgency, questioning why the Department of Energy didn’t sell at $100 and then buy at $70 when the opportunity arose. The Department of Energy has only added 5 million barrels to the reserve this year, a meager amount given the significant shortfall. The government cites logistical challenges, including completing congressionally mandated oil sales imposed in 2015, which were resolved in March this year.
Replenishing the Petroleum Reserve
The Biden administration faces the challenge of replenishing the reserve at a higher price than initially intended, and any buyback programs must be carefully coordinated to prevent price spikes. Standard Chartered’s recent report supports a well-supported $98 oil price based on supply and demand fundamentals, anticipating global demand growth of 1.5 million barrels per day in 2024.
While the U.S. crude oil production has reached an all-time high of 13.2 million barrels per day, the U.S. Shale Patch plays a crucial role in keeping oil markets supplied and prices low. The July passage of an amendment to the defense bill prevents China from purchasing oil from the U.S. emergency stockpiles, marking a significant shift in energy policy. Co-sponsored by Senators Joe Manchin and Ted Cruz, the amendment aims to restrict sales to entities controlled by the Chinese Communist Party and bans crude oil exports from the SPR to China.
This legislative change may hinder international cooperation in coordinating SPR releases during oil price spikes. In 2021, the Biden administration sought collaboration with countries like China, India, South Korea, and Japan to synchronize crude releases from their SPRs to mitigate global energy prices.
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Based on information provided by Oilprice.com: https://oilprice.com/Energy/Crude-Oil/The-Problem-With-Refilling-The-Strategic-Petroleum-Reserve.html