US Cancels Strategic Oil Reserve Refill Amid Rising Prices

The US Department of Energy has canceled solicitations to refill the Strategic Petroleum Reserves due to rising oil prices. Since 2021, 291 million barrels have been withdrawn, with only 14 million replaced, depleting the reserves significantly.

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Nitish Verma
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US Cancels Strategic Oil Reserve Refill Amid Rising Prices

US Cancels Strategic Oil Reserve Refill Amid Rising Prices

The US Department of Energy has canceled solicitations to refill the Strategic Petroleum Reserves (SPR) due to rising oil prices. Since 2021, 291 million barrels have been withdrawn from the SPR, but only 4.8% (approximately 14 million barrels) have been replaced.

Why this matters: The depletion of the Strategic Petroleum Reserves has significant implications for the US's ability to respond to future oil supply disruptions, potentially leading to price volatility and economic instability. Furthermore, the decision to cancel refill solicitations may have far-reaching consequences for global oil markets and the US's energy security.

The Biden administration has been selling barrels from the SPR to counter sanctions on Russian oil and make up for lost global supplies, aiming to quell surging oil prices. In mid-April, Washington sold 30 million barrels of crude, of which 26.3 million were sour, according to energy consultancy FGE.

The flood of sour barrels has increased the discount on Mars Sour, a key offshore US oil grade, to a $6.50 per barrel discount to US West Texas Intermediate benchmark, the lowest since March 2020. This situation is expected to result in higher exports of both Mars crude and Canadian heavy barrels out of the US Gulf Coast, according to Matt Smith, lead oil analyst for the Americas at Kpler.

As of the week ending February 9, 2024, the Strategic Petroleum Reserves stood at 358.8 million barrels, an increase of 700,000 barrels from the previous week. US commercial crude oil inventories increased by 2.8% during the same week, rising by around 12 million barrels to 439.4 million barrels, exceeding market expectations.

US crude oil production increased by 4,000 barrels per day (bpd) to around 13.73 million bpd during the week ending February 9, 2024. Crude oil imports declined by 437,000 bpd to reach 6.47 million bpd, while crude oil exports increased by 751,000 bpd to approximately 4.34 million bpd over the same period. The Energy Information Administration (EIA) predicts that crude oil output in the US will reach an average of 13.1 million bpd this year and 13.49 million bpd next year.

The US Department of Energy's decision to cancel solicitations for refilling the Strategic Petroleum Reserves comes at a time when oil prices are on the rise. Despite the Biden administration's efforts to counter the impact of sanctions on Russian oil and stabilize global supplies, the SPR remains significantly depleted compared to pre-2021 levels. As the US navigates the complex dynamics of the global oil market, the future trajectory of the Strategic Petroleum Reserves and its impact on domestic and international oil prices remains uncertain.

Key Takeaways

  • US cancels solicitations to refill Strategic Petroleum Reserves due to rising oil prices.
  • Only 4.8% of withdrawn 291 million barrels have been replaced since 2021.
  • Depleted SPR may lead to price volatility and economic instability.
  • US crude oil production increases to 13.73 million bpd, while imports decline.
  • SPR stands at 358.8 million barrels, significantly depleted compared to pre-2021 levels.