Diesel Climbs Above $4 for First Time Since May, Expert Says Refilling SPR Pushing up Prices

A customer prepares to pump fuel into his truck at a Valero gas station in Mill Valley, Calif. on July 22, 2013. (Justin Sullivan/Getty Images)

Diesel has broken above the psychological barrier of $4 per gallon on average in the United States, with an industry expert saying that part of what’s pushing up prices at pumps across the country is the Biden administration’s refilling of the Strategic Petroleum Reserve (SPR) after depleting it to a 40-year low.

The latest AAA data on retail sales of diesel shows that on July 31, prices climbed to $4.036 a gallon, marking the first time since mid-May that the national average price of diesel climbed above $4 a gallon—and rising.

A day later, on Aug. 1, diesel prices rose to $4.073 a gallon, with the steady climb coming on the back of a five-week long rally in crude oil prices that has been bolstered by various factors, including reduced output from countries like Saudi Arabia—and refilling of the SPR.

“Up until the end of June, the Strategic Petroleum Reserve was releasing oil almost on a weekly basis, which was helping to add supply into a market,” GasBuddy Head of Petroleum Analysis Patrick De Haan told Spectrum News on Monday.

“That’s part of the reason why Saudi Arabia and Russia cut production. But now, the releases from the SPR have ended and that’s actually probably pushing prices up, because now, the SPR is slowly being refilled,” he continued.

Other factors pushing up prices of diesel (and gasoline, which hit $3.78 per gallon on Aug. 1) were heat-related outages at some major refineries in Louisiana and Texas, he told the outlet.

De Haan’s remarks came as Saudi Arabia implemented a deeper cutback to prop up global crude markets, sending OPEC’s production tumbling by the most in three years, according to a Bloomberg analysis, which is based on ship-tracking data, as well as estimates from a handful of consultants.

With U.S. emergency stockpiles of crude at 40-year lows after President Joe Biden ordered a historic 180 million-barrel drawdown of the strategic reserve to quell soaring pump prices, officials have been working to refill the SPR.

Refilling SPR

The strategic reserve, which was filled to its then 727 million barrel storage capacity a little over a decade ago, remains near a multi-decade low at 346.8 million barrels, the latest federal data shows.

The Biden administration has been refilling it slowly over the past 14 weeks or so, though a Bloomberg report citing “people familiar” indicates that Department of Energy (DOE) officials have hit pause on topping up the SPR as crude prices have climbed above $80 a barrel.

“The DOE remains committed to its replenishment strategy for the SPR, including direct purchases when we can secure a good deal for taxpayers; exchange returns; and cancellation of planned sales where drawdown is unnecessary, in coordination with Congress,” Energy Department Deputy Chief of Staff Bridget Bartol told the outlet.

DOE officials said earlier that purchases of oil for the SPR would be made when crude fell to roughly $67 to $72 a barrel.

In an aerial view, the Strategic Petroleum Reserve storage at the Bryan Mound site is seen in Freeport, Texas, on Oct. 19, 2022. (Brandon Bell/Getty Images)

Energy Secretary Jennifer Granholm has said that the process of refilling the reserve could take years as a quick buyback program could lead to price spikes and revive inflationary pressures.

Reduced levels of the strategic stockpile have been the subject of controversy, as Republicans accused Mr. Biden of drawing it down irresponsibly and depriving the nation of an important energy buffer in case of emergencies.

Senate Amendment to Shield SPR

In a bid to protect the strategic stockpile, the Senate recently passed an amendment to the annual defense bill that would ban oil exports to China and other adversarial nations from the SPR.

The bipartisan amendment (pdf), spearheaded by Sens. Ted Cruz (R-Texas) and Joe Manchin (D-W.Va.), passed the upper chamber in a vote of 85-12 on July 20.

The measure amends the National Defense Authorization Act (NDAA) to ban sales of oil from the strategic reserve to China, North Korea, Iran, and Russia.

Part of what drove the two senators to push the amendment was the fact that, while the United States ramped up crude production and exports to meet global demand as some supply went offline in the wake of Russia’s invasion of Ukraine, some other countries took a different approach.

Sen. Joe Manchin (D-W.Va.), chairman of the Senate Energy and Natural Resources Committee, questions Interior Secretary Deb Haaland during a hearing in Washington on May 2, 2023. (Kevin Dietsch/Getty Images)

“China, on the other hand, stockpiled oil and held back refinery production, and while China was stockpiling, one of its state-owned companies purchased over 1.4 million barrels from the United States of America, the people of our great country, from our own stock of reserves,” Mr. Manchin said in a statement. “That’s what we’re trying to stop.”

Last July, in a sale of 39 million barrels from the strategic stockpile that was part of the Biden-ordered drawdown, around 1 million barrels went to UNIPEC America, a Houston-based arm of China’s Sinopec.

“We know China has been amassing the largest stockpile of crude in the world. Nevertheless, last year, the United States sold off part of our reserves to China,“ Mr. Cruz said in a statement. ”I have been working with Senator Manchin to prohibit such inexplicably reckless moves in a bipartisan way.”

“We should not be selling our emergency oil reserves to our adversaries,” Cruz added.

The Senate passed its amended version of the defense bill last week, teeing up a showdown with the House, which must give its stamp of approval on the measure before it heads to Mr. Biden’s desk for a signature.