Biden administration cancels offer for 6M barrels to refill Strategic Petroleum Reserve
Breanne Deppisch
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The Biden administration said it canceled its planned purchase of 6 million barrels of oil to help refill the Strategic Petroleum Reserve, leaving the nation’s emergency stockpile at its lowest level in 40 years as oil prices trend upward.
The purchase was announced by the Department of Energy last month as part of its buyback plan to refill after the 180-million-barrel sale President Joe Biden ordered last year following Russia’s invasion of Ukraine.
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The Biden administration is targeting oil prices of between $67 to $72 per barrel to replenish the stockpile. But that’s well below current crude prices, which have seen five straight weeks of gains as global demand rises and Saudi Arabia’s supply cuts continue to squeeze markets.
International benchmark Brent crude stood at $84.55 per barrel as of midmorning Wednesday, and U.S.-based West Texas Intermediate also stood above $80 per barrel.
The department “remains committed to its replenishment strategy for the SPR,” a spokesperson told Reuters on Tuesday, which includes direct purchases, returns of oil loaned to companies following a hurricane or other natural disaster, and the cancellation of planned sales where drawdown is deemed unnecessary, in coordination with Congress.
The 180-barrel drawdown ordered by Biden last year was intended to provide U.S. consumers relief from the soaring gas prices caused by Russia’s war in Ukraine.
And while the sales did help lower gas prices in the U.S. by nearly 40 cents per gallon, according to a Treasury estimate, they also drained the reserve to its lowest level in 40 years, prompting concern from some analysts, who fear the low inventory could leave the U.S. vulnerable and resource-strapped at a time of an actual supply emergency, such as a natural disaster or hurricane.
Prices also show no signs of abating in the months ahead, as Saudi Arabia’s supply cuts of 1 million barrels per day are expected to continue through at least September, tightening supplies and outpacing expected demand growth.
Goldman Sachs analysts projected this week that Brent crude prices will reach $86 per barrel by the end of 2023 and rise further to $93 per barrel by the second quarter of 2024.
“Oil prices are up 18% since mid-June as record high demand and Saudi supply cuts have brought back deficits, and as the market has abandoned its growth pessimism,” Goldman Sachs analysts said in a note.
Last month, Energy Secretary Jennifer Granholm acknowledged that the administration might not be able to refill the reserve during President Joe Biden’s current term.
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“The bottom line is we are going to replenish,” Granholm told CNBC in an interview.
Asked whether it would be refilled during Biden’s current term, she responded: “The first term’s over in a year and a half. So, I’m not sure it’ll be fully replenished. But certainly, the plan is this term and the next term to be able to do that.”