Yves here. Oil experts had warned that the 2022 Strategic Petroleum Reserve drawdown would be bullish for oil in 2023, since replenishing the stocks would boost oil demand. The Biden Administration acted as if that would not be an issue by setting a $70 a barrel target on its purchases. But the Administration has not made much progress since Mr. Market is not cooperating.
And mind you, the Administration is having trouble with its price targets even as the Chinese economy continues to flounder thanks to its botched ending of Covid restrictions. Most experts expect oil prices to increase once Chinese demand rebounds.
By Charles Kennedy, a writer for Oilprice.com. Originally published at OilPrice
- The DoE has received several offers for February purchases to refill the SPR.
- For February, the plan was to purchase 3 million barrels, ideally when oil dropped to around $70 per barrel.
- The rejected bids are prompting speculation that refilling the SPR will be challenging, at best.
After drawing over 221 million barrels of oil from the Strategic Petroleum Reserve (SPR) in 2022, Washington is having a tough time refilling it in the New Year, with the Department of Energy (DoE) rejecting the first offers on the grounds that they failed to benefit taxpayers.
The DoE has by now received several offers for February purchases to refill the SPR, according to both Bloomberg and Reuters. However, those offers have been rejected as too expensive or failing to meet other requirements.
For February, the plan was to purchase 3 million barrels, ideally when oil dropped to around $70 per barrel. This 3-million-barrel pilot program would have given sellers a fixed price for future deliveries and is in contrast to the DoE’s normal operating procedure, which had seen it purchase oil for faster delivery without fixed-price contracts.
Right now, WTI is trading around $75/$76 per barrel, and new data from the Energy Information Administration (EIA) released on Monday shows another 0.8 million barrel draw from the SPR.
According to Bloomberg, citing unnamed sources “familiar with the matter”, the DoE will now postpone its originally planned February purchases and embark on a new approach for fixed-price offers.
“DOE will only select bids that meet the required crude specifications and that are at a price that is a good deal for taxpayers,” the DoE said in a Friday statement carried by news agencies. “Following review of the initial submission, DOE will not be making any award selections for the February delivery window.”
The rejected bids are prompting speculation that refilling the SPR will be challenging, at best.
The plan to fill the SPR, which has reached its lowest level since 1984, might not be attractive enough to sellers, despite the DoE’s efforts at enticement.
Additionally, the Wall Street Journal speculates that the DoE may not have enough funding to refill the SPR completely. According to WSJ, the DoE has $.48 billion in purchasing power. At the desired $70 per barrel, that would give it enough funding to refill the SPR to 440 million barrels.
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If someone, someone, anyone who had an interest, wanted to increase the price of oil, one way would be to deplete the Reserve entirely.
Purchasing would then be at the mercy of a market that could not be nudged lower by the threat of the
Reserve.
It would have been abolished…. ooops!
When talking about oil usage in the US, it helps to put it into context by knowing that the US uses about 20 million barrels of oil a day, So while you read that over 221 million barrels of oil were drawn from the Strategic Petroleum Reserve (SPR) in 2022, when you do the maths it works out to only about 11 days worth so not a lot. When I went into the SPR a bit, I found that ‘The SPR was established in the 1970s to reduce the effects of unexpected oil supply reductions. The reserve was designed to hold up to 714 million barrels of crude oil across four storage sites along the Gulf of Mexico, where much of the U.S. petroleum refining capacity is located’ so that gives about 36 days of use as reserve.
I do wonder about the US Government demanding that it will pay only $70 a barrel right now when the market price is several dollars higher. Considering the fact that the US put a price cap of $60 a barrel on Russian oil, could it be that maybe somebody had the thought that the US might deem to buy Russian oil at that $60 a barrel price to fill up the Strategic Petroleum Reserve as the Russians could not resist such a big contract? If so, they can forget that idea as nobody is paying any attention to that $60 a barrell price cap, not even the Japanese. And I see that right now, that the SPR is down to about 370 million barrels – about 19 days worth. That does not sound good that-
https://ycharts.com/indicators/us_ending_stocks_of_crude_oil_in_the_strategic_petroleum_reserve
Presumably Biden needs to refill it so he can draw it down again during his 2024 election campaign. It’s now the Strategic Political Reserve.
You won’t find me arguing with you over that point.
Given the closeness of the election, it’s certainly possible that this politicized use of an emergency resource did save some liberal Democrat seats. Well done, Biden!
Suppression of the laptop story probably was a bigger factor and the sophisticated and methodical approach the Biden acolytes in the Federal Government and in the campaign took to feed disinformation to the press suggests that the Biden campaign was fully aware that would have likely cost him the race. We now are learning what a massive and coordinated effort it was. Government employees taking sides like this as well as using the petroleum reserve to fix an election sure looks like an abuse of the taxpayers. Ideally we would pay taxes for government services rather than to pay taxes for partisan gaslighting.
Funny Rev, you know how much oil we use per day. I watched an interview several months ago and our Dept. of Energy Secretary, Jennifer Granholm was caught off guard when she was asked how much we use. She said she “didn’t have that information in front of her.” Amazing.
Maybe they are just inept.
Maybe it’s just me, but if you don’t have a clue how much crude oil we use a day you shouldn’t be in that position.
Ms Granholm knows less about energy than Mr Buttigieg knows about transportation. The incompetence of the current administration is breathtaking.
Great point, and I couldn’t agree more. And yet, some people actually adore these people. I don’t get it.
That’s because there is a capital D next to their name. Orange man bad ruined many people’s temporal lobe.
Just buy some mystery oil from India. Rumor that they have deals
The US is largely self-sufficient with its oil. so if there were zero imports, the SPR lasts a lot longer than in the past.
BUT this self-sufficiency is due to shale drlling. Beyond my pay grade, but it is my understanding that we are at the end of the “golden age” for US shale wells.
That is not accurate. The US imported just short of 8.5 million barrels a day in 2022:
https://www.eia.gov/tools/faqs/faq.php?id=727&t=6
The fact that our exports equal or exceed our imports is mislabeled as self sufficiency when the grades we use are not an exact match for the grades we make. Remember how Biden was begging Venezuela for its nasty heavy sour crude? We need some of that and we don’t make it.
Yes, thanks to PMC idiots with their nilly-willy application of sanctions, it may be the oil grades most needed can’t be had for any price, and that even today’s equivalent to Marc Rich/Pincus Green just can’t make the label swapping work, or work fast enough as the case may be. The idiots even stopped a shipment of Iranian thinning agents necessary to get Venezuelan Crude out of the ground while the USA state department were in Caraccas negotiating for supply that can’t be physically had.
The MBA pin factory mentality strikes again…
More like the US oil dole.
As long as DC can keep the pump price artificially low, they avoid large scale riots. Just like the Roman grain dole…
you have a ship jam at the ports because of the idiotic policy of free trade has offshored to the point where the supply chains make no sense at all, besides the debt and poverty that comes with it, why just move the ships out of sight, WALLA, its fixed!
covid is taking its toll killing millions and producing millions permenentely disabled, just get up in front of the american people an tell them its over with, its just a minor flu now, WALLA, its fixed!
deregulation of the airlines has created a multi-decade debacle ruining the lives of untold numbers, driving airlines into the ground, the looting, the lost wealth and skills, outright theft culminating in the southwest debacle, just arrest the passengers who were stolen from as trespassers, WALLA, its fixed!
so the reserve is no big deal, the big deal is that the multi-generational drive by the free traders for complete world dominance is so close, that nothing is going to get in there way.
everything including the kitchen sink will be thrown at russia, then china is next. the nafta democrats and their GOP allies will tell you that you should have prepared your life better, you did not, so tough s##t.
the looneytarian PMC will be right there reminding the deplorable/MAGA people what losers they are.
don’t be to surprised if the reserve never gets filled again, and crumbles.
The USG usually buys oil for the SPR when the price is at its high just like they sold their GM stock when the price was low. We can count on the USG to ladle out more and more largesse to the yuuge corporations.