Key Takeaways
Biden’s Energy Department is looking to buy 3.3 million barrels of oil for the emergency reserve for October delivery due to a dip in oil prices.
Biden sold 180 million barrels from the reserve to artificially lower gas prices before the 2022 elections.
Biden’s sales led to the smallest emergency oil reserve in 40 years at a time when his offshore leasing program is the smallest since WWII and his onshore leasing program is similarly anemic.
Biden intends to reduce the overall size of the Strategic Petroleum Reserve (SPR), using the cancellation of planned long-term sales by Congress as justification.
Congress had scheduled long-term sales for budget reduction purposes, but Biden’s abuse of the system for political purposes led to a cancellation.
The United States will be left with a smaller SPR with fewer supplies in the event of a real emergency.
The Biden administration is taking advantage of a dip in oil prices to restart plans to refill the nation’s depleted emergency oil reserve. The Energy Department announced a bid for as much as 3.3 million barrels of oil for October delivery to the Strategic Petroleum Reserve (SPR) after a rise in oil prices led the agency to cancel a similar proposal last month on grounds that it was not in the taxpayer’s best interest. The Biden administration drew down the emergency reserve by 235 million barrels with the most recent drawdown of 180 million barrels occurring in 2022–nearly five times bigger than any previous sale–to reduce gasoline prices that had hit $5 a gallon before the mid-term election. Gasoline prices above $4 a gallon produce hardship and anger for Americans. Biden’s advisors are aware of that despite the pledge to end fossil fuel use.
Biden’s Energy Department has been very slowly refilling the more than 700 million barrel-capacity reserve after it reached a 40-year low due to the withdrawals. Biden’s SPR sales have led to an emergency reserve at half of its peak level at time when Biden’s offshore leasing program is the smallest since WWII and his onshore leasing program is similarly anemic. The SPR currently holds about 365 million barrels, half of what it held in 2009 (727 million barrels), down from almost 600 million at the start of 2022.
Recently, WTI oil prices fell to around $78 a barrel — below the administration’s stated buying range of $79 a barrel and below. According to Biden’s Energy Department (DOE), the administration has purchased 32.3 million barrels of oil for an average price of $76.98.
Biden originally wanted to purchase oil for the reserve at prices around $70 a barrel, despite selling the oil at around $95 a barrel to lower gasoline prices in 2022. Because the oil in the SPR was originally bought at around $30 a barrel, Biden has actually lost around $65 a barrel due to his political stunt to artificially lower gasoline prices, thereby influencing the 2022 election. President Trump wanted to buy oil for the SPR in 2020 when oil was selling for $25 a barrel, but the Democrat-led Congress would not approve the funds for the purchase. Senator Schumer panned the proposal as a “bailout for Big Oil,” even though taxpayers will now be paying over three times as much per barrel.
According to President Joe Biden’s energy adviser Amos Hochstein, the Strategic Petroleum Reserve’s oil supplies are robust enough to mitigate potential supply disruptions, and the administration continues to monitor market dynamics for strategic SPR use, meaning that it will again use the reserve to lower gasoline prices should they hover around $4 or more a gallon. Much of the oil that remains in the reserve, however, is not of the quality that U.S. refiners need for their refineries as they retooled decades ago. The quality of oil sold during the run-up to the 2022 election is the type U.S. refiners would need to quickly process in the event of a national emergency, whereas the type remaining is much harder to process in the U.S. refinery system. The sales therefore were an example of “high-grading,” or taking the best resources first and leaving product of less value behind.
Background
In the fall of 2022, the Biden administration indicated it would start to refill the reserve when prices were at or below about $67-$72 per barrel after criticism that they were using the SPR as a political tool. But, its first bid in 2023 ended without a purchase with the administration saying that the cost was too high and the type of oil was not to its specifications. While some bids have been accepted and the price limit to purchase oil has increased, other bids have also been cancelled.
For example, in early April 2024, the DOE cancelled two proposed solicitations for 1.5 million barrels each, to be delivered to the Bayou Choctaw storage site in September, after price increases and concerns about demand effects of steady SPR refills moved prices beyond the administration’s stated $79 per barrel target. In late March, however, the DOE went ahead with a purchase of 2.8 million barrels at an average price of $81 per barrel, removing language about the $79 per barrel target from its announcement.
Biden Administration Claims the SPR Replenishment is Almost Complete
Because DOE is no longer required to sell more than 140 million barrels of oil through 2027 that would have been congressionally mandated prior to a 2022 legislative change that eliminated SPR sales unrelated to supply disruptions, DOE believes it has nearly followed through on its commitment to return all 180 million barrels it sold in 2022 to the reserve. Since the beginning of 2024, DOE has added 12.5 million barrels to the SPR, and an additional 18.4 million barrels are anticipated to be refilled by October 31, 2024. The latest proposal for the Big Hill SPR storage site aligns with the monthly cadence of solicitations observed for that site since October 2023.
The maximum purchase price for barrels scheduled for delivery in October 2024 is capped at $79.99 per barrel. With the exception of the September 2024 purchase, which was made at a price of $81.32 per barrel, all other purchases this year have been below $80 per barrel. To date, the DOE has accounted for about 176 million barrels, which will increase to over 179 million if the October Big Hill purchase is completed.
Conclusion
DOE efforts to refill the SPR have been at a trickle. The Biden administration has brought the U.S. Strategic Petroleum Reserve down to a 40-year low with just 20 days of emergency oil supply, leaving the country vulnerable to oil price shocks and reliant on global exporters like Saudi Arabia, Russia and the rest of the OPEC+ cartel for the quality of oil U.S. refiners need. While the United States is the largest oil producer in the world, it still needs to import oil to obtain the needed quality. The United States imports heavy oil that U.S. refineries use and exports light oil that works more efficiently in other countries’ refineries. The SPR purchases have been at a trickle because President Biden has no plans to bring the U.S. emergency oil reserve back to the 577 million barrels it held in March 2022, citing a series of spending bills passed by Congress in the late 2010s that called for selling off hundreds of millions of barrels—sales that Congress reversed in 2022.
