After a record 180 million barrel sale from the Strategic Petroleum Reserve (SPR) last year, largely in response to high oil prices spurred by unstable political and economic conditions, the US government is taking steps to replenish the SPR.
The large-scale sales in 2022 depleted the SPR to its lowest level since 1983. Against this backdrop, the Biden administration aims to buy back 12 million barrels of oil in 2023, six million of which have already been announced. The Department of Energy (DOE) confirmed that five companies sold 3.1 million barrels to the SPR for August delivery, and an additional three million barrels were solicited for September delivery.
"Today’s announcement advances the [US] President’s replenishment strategy following his historic release from the SPR to address the significant global supply disruption caused by [the conflict] in Ukraine," Department of Energy stated.
The move to replenish the SPR comes amid criticism, particularly from Republicans, that the administration has jeopardized energy security. The US is less dependent on oil imports now than in 1983, yet the low level of the SPR has raised concerns. The reserve, designed to provide a buffer against short-term supply disruptions, currently holds about 351.7 million barrels. While this is well below its more than 700-million-barrel capacity, the administration's buy-back plan is conditioned on market situations and operational limitations of the SPR.
"This purchase is in continuation of the Biden-Harris Administration’s three-part replenishment plan and DOE will pursue additional repurchase opportunities this year as market conditions allow," the DOE added.
This decision, however, may have repercussions on the global oil market. Last year's depletion led to lower prices for Saudi Arabia's key export, straining the US relationship with the kingdom.
Now, as the administration starts buying back, it could tighten the market again, possibly increasing oil prices. Traders are watching the situation closely, especially as the sour crude grades sought by the DOE are in high demand due to OPEC+ cutting output. The plan to restore the SPR through small purchases seems to be a warning move to mitigate potential price spikes during the summer driving season.
"The DOE seems to be looking to replenish the Reserve in a series of small nibbles rather than big bites, perhaps to minimize upside pressure on crude in the summer driving season (and the Presidential election season)," Washington-based consulting firm ClearView Energy Partners stated.