Oil purchases deferred as offers received were either too expensive or didn’t meet the required specifications
The U.S. is in no rush to refill its Strategic Petroleum Reserves (SPR), according to Biden administration officials.
In fact, “it could take years for the United States to refill the Strategic Petroleum Reserve” to the level it was before the 180 million barrel sale last year, energy secretary Jennifer Granholm told lawmakers last Thursday.
“This year, it will be difficult for us to take advantage of this low price” due to the sale of oil to be delivered from April 1 to June 20 and maintenance at two reserve sites, the Energy Secretary told U.S. representatives in a congressional hearing. “But we will continue to look for that low price into the future because we intend to be able to save the taxpayer dollars.”
That position was seconded by Amos Hochstein, the Special U.S. Presidential Coordinator for Global Infrastructure and Energy Security, in an interview with Bloomberg Television.
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“We’ve seen a decline in oil prices; we’re seeing some crunch there,” Hochstein said. “We should take a deep breath and wait and see how this crisis impacts the oil and gas industry, production and what the profile is. So far, prices have come down. We’re watching it very closely; we’ll continue to watch it over the next several days.”
The U.S. Strategic Petroleum Reserves currently stand at their lowest level since the early 1980s. The SPR, created in the aftermath of the 1973 oil crisis to shield the country from supply disruptions, can hold around 700 million barrels of crude oil. But after releasing 180 million barrels last year to tame sky-high gasoline prices, the SPRs currently hold some 371.6 million barrels of crude. That’s down from 594 million barrels, or nearly 40 per cent, from a year ago. It has not been this low since 1984.
The Biden administration had announced plans to rebuild the Strategic Petroleum Reserves in mid-December last year once the crude markets stabilized. Media reports at the time indicated that the U.S. Department of Energy (DoE) was planning to purchase crude oil and rebuild its crude reserves once the West Texas Intermediate crude oil prices were at or below $67 to 72 a barrel delivery. In a November interview on Bloomberg TV, Hochstein had clarified that the DOE will start buying back barrels when “prices get to somewhere in the $70 range consistently.”
That policy is now in jeopardy because prices are still slightly higher than the target, forcing the Department of Energy to rethink its buyback initiative. Due to the market situation, the administration had to cancel its plans to buy in February. A DoE spokeswoman confirmed last January it wouldn’t be buying for the February delivery window. “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 spokeswoman told the Wall Street Journal.
Bloomberg later reported that the administration had to defer the purchase since the offers received were either too expensive or didn’t meet the required specifications.
The dampening of the demand outlook, due to the deferral in purchases for SPR and the European banking crisis, has battered crude market prices. “The lack of crude buying for the SPR represents a major blow to the oil demand outlook,” PVM Oil analyst Stephen Brennock said in the media.
The see-saw continues. Before moving forward, the U.S. Department of Energy seems to be waiting for some more battering of the crude markets.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
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