US Department of Energy Faces Funding Shortage for SPR Refill

Current Oil Prices and the Strategic Petroleum Reserve

The price of the U.S. WTI crude oil has consistently remained in the low $70s per barrel for a considerable period, giving the Biden Administration the opportunity to increase the refill of the Strategic Petroleum Reserve (SPR). The administration had previously stated it would do so when prices were at $79 a barrel or below. As of Tuesday morning, WTI Crude is priced at $70 per barrel, having spent several days below this threshold.

Funding Constraints for the Energy Department

However, the Energy Department is left with just $841 million to purchase crude for the SPR, according to a Bloomberg report citing an estimate from ClearView Energy Partners, a consulting firm. At current prices, this amount would only suffice to buy around 12 million barrels of crude, as per Bloomberg's calculations. This amount is relatively insignificant, considering that the SPR is just over half full relative to its capacity of 700 million barrels.

Upcoming Bids for Oil Supply

The DOE's Office of Petroleum Reserves has recently announced a call for bids to supply up to 1.5 million barrels of oil to the Bayou Choctaw site in January 2025. A subsequent solicitation will follow on August 12, 2024, for an additional 2 million barrels destined for the Bryan Mound site, also set for delivery in January 2025.

SPR's Role in Market Stabilization

The replenishment strategy is a response to the SPR's crucial role in stabilizing the market during global supply disruptions. Notably, more than 180 million barrels of oil were released from the SPR starting in 2021 as gasoline prices remained high. The Department of Treasury asserts that these releases, in conjunction with coordinated international efforts, contributed to a reduction in gasoline prices by up to 40 cents per gallon in 2022. The SPR currently holds 375 million barrels of crude, which is 263 million barrels less than the amount of oil in the SPR at the start of President Joe Biden’s term. The SPR, which can store up to 714 million barrels of crude oil, is housed in underground salt caverns at four sites in Texas and Louisiana. It was designed to safeguard the economy and American livelihoods during oil shortages.

Bottom Line

The SPR's role in stabilizing the market during supply disruptions is undeniable. However, the current funding constraints faced by the Department of Energy raise questions about the sustainability of the SPR refill strategy. What are your thoughts on this matter? Do you think the current funding will suffice to maintain the SPR's crucial role in market stabilization? Share this article with your friends and let us know your thoughts. Don't forget to sign up for the Daily Briefing, available every day at 6pm.