The Biden administration canceled its planned acquisition of 6 million barrels of oil to help refill the Strategic Petroleum Reserve (SPR).
This move leaves the nation’s emergency crude stockpile at its lowest level in four decades, as global oil prices have ticked upward after a cut in output from Saudi Arabia.
The planned purchase was announced by the Department of Energy (DOE) on July 7 as part of an effort to refill the SPR after President Joe Biden ordered 180 million barrels to be sold last year during a massive surge in U.S. gas prices.
The agency has since bought back 6.3 million barrels of oil in recent months.
The American Petroleum Institute announced that U.S. crude stocks fell by about 15.4 million barrels in the week that ended on July 28.
Unrealistic Target
The White House stated that it would wait for oil prices to reach between $67 to $72 per barrel before replenishing the stockpile, but that target is well below the current price.Brent crude, the international benchmark, stood at $83.20 per barrel as of closing on Aug. 2, while the U.S. benchmark, West Texas Intermediate, stood at $79.49 per barrel.
Goldman Sachs analysts recently predicted that Brent crude prices would eventually reach $86 per barrel by the end of the year and rise further to $93 per barrel by the second quarter of 2024.
“Oil prices are up 18% since mid-June as record high demand and Saudi supply cuts have brought back deficits, and as the market has abandoned its growth pessimism,” they said.
Tightening supplies of crude over the past five weeks have also caused global oil prices to rise above $80 per barrel as demand continues to rise, mainly in China.
A decision by Saudi Arabia and OPEC to cut production of 1 million barrels per day from July through September has added pressure to the market, with no sign of abating in the next few months.
Rising gas prices are now once again becoming a major concern after prices hit their highest levels since April last week.
White House SPR Policy
The Energy Department spokesperson said that it “remains committed to its replenishment strategy for the SPR,” including direct purchases, return of oil that was loaned to companies in the wake of hurricanes and other supply disruptions, and cancellation of planned sales where drawdown is unnecessary in coordination with Congress.Mr. Biden’s order to open the SPR did lower average gas prices by nearly 40 cents per gallon, according to a Treasury estimate, but it has left the SPR at dangerously low levels.
Several analysts are concerned that the low stockpiles could leave the nation vulnerable and starved of crude in an actual supply emergency, such as a natural disaster or military conflict.
“In the meantime, with the reserve at its lowest level in 40 years, the U.S. could be vulnerable to oil price shocks. It also means that during domestic supply crunches, the nation will be left to the mercy of global exporters like Saudi Arabia, Russia, and the rest of the OPEC+ cartel,” John Shages, who was formerly in charge of the SPR for the Energy Department, told Bloomberg.
He also warned that it could take decades to refill the SPR at the current pace.
Energy Secretary Jennifer Granholm told CNBC in July that the reserve might not be refilled by the end of Mr. Biden’s current term.
“The bottom line is we are going to replenish,” Ms. Granholm said.
Senate Bill
In July, the Senate voted to ban China from purchasing oil from the SPR after the Biden administration failed to prevent sales to Beijing.A Chinese state-controlled gas company, Unipec, the trading entity of the CCP-owned China Petrochemical Corporation, bought 950,000 barrels from the reserve.
“The original intent of the Strategic Petroleum Reserve was to ensure that America had sufficient oil reserves in the event of an emergency,” Sen. Ted Cruz (R-Texas), one of the bill’s sponsors, said in a statement.
“We are unnecessarily and dangerously undermining our national security in any instance that we sell any part of this stockpile to the Chinese Communist Party or any company under its control. I’m proud to lead the bipartisan effort to stop this from happening in the future and unleash American energy.”
Republicans have also criticized the president’s unwillingness to fill up the reserve faster, after earlier accusing him of emptying it for political purposes prior to last year’s mid-term elections.
“DOE’s mismanagement of the SPR has undermined America’s energy security, leaving the nation more vulnerable to energy supply disruptions, and increasing the ability for OPEC and Russia to use energy as a geopolitical weapon,” congressional Republicans wrote to the Government Accountability Office in May.
The lawmakers also requested an audit of the SPR.
