The Biden administration finally plans to purchase about 12 million barrels of oil this year to start to refill the depleted national emergency reserve as oil prices remain low. But, 12 million barrels is a drop in the bucket to the 260 million barrels that the Biden administration sold beginning in November 2021 and continuing through last year—a mid-term election year. Further, that amount falls short of the contracts it awarded in March to meet its Congressional obligation to sell 26 million barrels from the Strategic Petroleum reserve in Fiscal Year 2023. The 12 million barrel figure includes 3.1 million barrels already scheduled for delivery in August, bought at an average price of $73 a barrel, and an additional 3 million barrels—one oil tanker’s worth–from a solicitation the Biden administration issued recently.
The Biden administration SPR pre-election sales brought the Strategic Petroleum Reserve to around 372 million barrels, the lowest since 1983, amounting to just under 20 days of supply at current U.S. consumption rates, which some think leaves the United States with too thin a supply buffer to adequately respond to a future supply crisis. It was also a sore point for U.S. relations with Saudi Arabia by depressing prices for the kingdom’s top export.
The more than 700 million barrel-capacity Strategic Petroleum Reserve is at a 40-year-low following the 260 million barrels President Biden allowed to be sold to keep oil prices and hence gasoline prices in a range acceptable to his administration. The oil grades sought by the Energy Department (DOE) are in high demand as a result of OPEC+ cutting output. Any additional pull on domestic barrels could send oil and gasoline prices higher. Biden’s Department of Energy seems to be replenishing the Reserve in small nibbles rather than big bites, which is likely designed to minimize pressure on oil prices during the summer driving season and the beginning of a Presidential election season.
Last fall, the Biden administration said the aim was to refill the reserve when prices were at or below about $67-$72 a barrel after criticism that it was using the Reserve as a political tool. In January, a prior DOE solicitation to purchase 3 million barrels for the Reserve was canceled after the agency said the offers were either too expensive or did not meet its specifications.
The Energy Department says it plans to “repurchase crude at a lower price than the average of about $95 per barrel it was sold for in 2022, while strengthening energy security by providing certainty to the industry in a way that helps encourage near-term supply.” In addition to direct purchases, the agency indicates that part of its strategy for refilling the reserve includes a return of oil from previous exchanges, and avoiding “unnecessary sales unrelated to supply disruptions.” Due to its depleting the oil reserve, last year, the Biden administration was able to cancel about 140 million barrels of oil sales that were mandated by Congress.
At one time, the government took its royalty from federal production in a “royalty-in-kind” program, in which rather than cash payments, the government was able to take physical ownership of volumes of oil and gas. This program was halted by the Obama administration in 2009, despite its success at bringing federal oil into the SPR after anti-oil groups opposed it.
Conclusion
Energy Secretary Granholm has had a number of excuses for not filling the Reserve. Granholm said the government would repurchase oil for the reserve after a congressionally mandated drawdown ends in June. She also claimed that the agency would refill the Reserve as soon as maintenance work on two of the Reserve’s four sites on the coasts of Texas and Louisiana was completed in the fourth quarter. Most likely, little will happen as the Biden administration is just buying a few barrels here and there and hoping it can claim mission accomplished to the American people. The real buying will begin only when there is no choice, that is just after the next geopolitical shock and the administration has to buy oil when the price may be in the triple digits. Biden’s energy and climate policies are raising prices for Americans and it will continue to do so as it releases its regulatory agenda and other policies.
