US Downplays Possibility of Fresh SPR Releases
A senior US energy advisor is downplaying the possibility of new releases from the nation's Strategic Petroleum Reserve (SPR) as oil markets digest the impacts of the G7’s oil price cap and Opec-plus’ decision to stick to its previous output cut plans.
Softer prices appear to be behind the SPR conservatism.
Amos Hochstein noted in a CNBC interview Monday that US President Joe Biden’s decision to announce a record 180 million barrel release from the SPR in March following Russia’s invasion of Ukraine came as crude prices were pushing $120 per barrel.
“Today, WTI is almost $40/bbl below that,” the senior US energy advisor said. “If there is an emergency — if there are storms, or another reason for [an] emergency — we still have enough in the SPR to be able to respond to that.”
SPR inventories stood at 387 million bbl as of Dec. 2, according to the US Department of Energy (DOE) — 35% lower than at the start of year. Although the record low has captured headlines and claims of dangerously low strategic stocks, US inventories remain well above coverage guidelines dictated by the International Energy Agency thanks to the US’ rise as a domestic producing powerhouse.
Russia and Ukraine are “still at war, but the prices are not at $120/bbl,” Hochstein said. Indeed, oil prices fell on Monday due to persistent macroeconomic concerns, with WTI closing below $77/bbl — some $5-$10 above the level the US was considering for buying oil to replenish the SPR.
Crucially, average US retail prices for regular gasoline had fallen to around $3.60 per gallon by late November, down from close to $5/gallon in June. The Biden Administration prefers a price below $3/gallon.
Catching Flak
The Biden administration’s heavy use of the SPR has drawn criticism on several fronts: conservative politicians at home, who viewed the releases as a pure political play ahead of the November elections; US oil producers, which see lower revenues when prices fall; and Opec members and their allies, which do not like to see market intervention from other players.
The expected Republican chair of the US House of Representatives Oversight Committee, Rep. James Comer, said on Sunday that he would be investigating the Biden administration’s overtures to Opec to increase oil production before the election — although the group in the end agreed to cut output.
Biden administration officials initially framed the SPR releases as a “bridge” until domestic output could rise. US oil production averaged nearly 12.3 million b/d in September, according to the Energy Information Administration, up about 900,000 b/d from the beginning of the year.
Hochstein also appeared to downplay the idea that the G7 price cap on Russian crude would increase prices, noting instead that a “significant chunk” of the oil market would have a $60/bbl limit.
The mechanics of the SPR releases since March have been straightforward, with the DOE offering up barrels for delivery under emergency authority seven times this year. The department's offers have occasionally been undersubscribed, in which case it has packaged those barrels with subsequent offers.
It generally takes about six weeks from an offer for the barrels to get to market, an administration official said in October. That indicates that the chances of seeing SPR volumes on the market beyond the already authorized 180 million bbl before the end of the year are very low, and time is limited for new SPR volumes to hit the market for January.
Buy, Don’t Sell
While Hochstein said the US could release SPR sales if another emergency arises, attention in Washington seems to have shifted to refilling the reserves.
The Biden administration says it will buy back oil at $67-$72/bbl, although there’s so far nothing automatic about the buyback process.
Doug MacIntyre, deputy head of the Office of Petroleum Reserve, told a congressional committee last week that the DOE is planning on repurchasing 60 million bbl, although he did not provide a time frame for those buybacks.
The DOE is also asking Congress to cancel about 130 million bbl in future sales that are currently scheduled over the next four fiscal years. Canceling the sales rather than requiring them alongside the DOE’s efforts to replenish the SPR will make for a smoother process, MacIntyre argued.