The White House confirmed the further drawdown–the largest weekly release on record–which is expected to drop oil reserves to a 39-year low.
US President Joe Biden confirmed on Tuesday that 15 million barrels of oil will be released from the Strategic Petroleum Reserve (SPR), and that the government will begin replenishing the reserve only when petroleum prices decrease dramatically from current levels.
“The Department of Energy (DOE) is issuing a Notice of Sale tomorrow morning for 15 million barrels from the SPR to be delivered in December. This sale will complete the historic, 180-million-barrel drawdown the President announced in the spring, which has helped to stabilize crude oil markets and reduce prices at the pump,” the White House said in a statement.
The sale would sink further the record low SPR below the 400-million mark–a level not reached since May 1984.
The White House also added that Biden also urges the DOE to be prepared to conduct additional major SPR sales this winter if Russian or other activities disrupt global markets.
The reserves are being released faster than at any other point in history as the United States saw its SPR fall below 450 million barrels–the lowest level in 38 years–just this September as the government continues on with its plan of releasing 1 million barrels per day.
At that time in September, as well, the Biden administration said it is looking at refilling its oil reserves should crude oil prices drop below US$80 a barrel. The WTI benchmark dropped as low as US$76.71 since this announcement before quickly rising back up to US$92.64 in early October.
But the latest White House statement has moved the price requirement to refill the SPR further down.
“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 statement read.
In addition, DOE has established a first-of-its-kind rule that allows it to enter into fixed-price contracts with suppliers to repurchase oil for future delivery windows through a competitive bid procedure. This new authority will support oil demand when supply is less unpredictable and prices are expected to fall.
“For example, if the market were to price barrels for delivery in mid-2024 at $70, the new rule allows DOE to enter into a contract now for mid-2024 delivery of oil at, around or lower than that price,” the White House explained.
The energy department intends to use this ability to engage into contracts to repurchase oil for the SPR at a price of $67 to $72 per barrel or less, with initial repurchases due in 2024 or 2025.
What has the largest SPR release done so far?
The White House also touted the results of “the largest-ever release from the SPR,” saying the strategy “secured historic coordination with allies and partners to release crude oil from their reserves as well.”
“Treasury Department economists estimate that these releases, along with coordinated releases from international partners, have reduced gas prices by as much as about $0.40 per gallon, compared to what they otherwise would have been,” the statement read.
The move also made the gas prices in the United States drop by more than a dollar a gallon from their peak earlier this year, according to the White House.
The government also reiterated that Biden “is prepared to authorize significant additional sales in coming months if conditions require.”
“DOE will be prepared to act quickly to inject additional supply into the market if needed, and the Administration will not hesitate to use this tool, or the others at its disposal, to shore up the global supply of energy, support domestic inventory levels, and bring prices down for Americans,” the statement added.
Despite this, the US government assured that its SPR “remains the largest strategic reserve in the world with about 400 million barrels remaining, which is greater than the amount of any SPR release in U.S. history.”
It also assured Americans that even as DOE executes on the plan to refill the SPR to previous levels in coming years, “the SPR remains more than ready to respond to energy security needs today.”
The latest move to sell further reserves comes after the OPEC’s decision to cut oil production by 2 million barrels per day come November, which amounts to about 2% of total global demand–the biggest cut it has implemented since the pandemic.
Biden seemed to have tried to negotiate delaying the output cut with the oil-producing cartel, according to the organization’s de facto leader, Saudi Arabia.
Information for this briefing was found via the White House. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.