Sources: US Weighs Cancellation of Next SPR Sale

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The US is reviewing and considering canceling a planned sale of crude oil from its Strategic Petroleum Reserve (SPR) this year as the Biden administration switches its focus to refilling the reserve after a year of record releases aimed at taming oil prices.

At stake are 26 million barrels of congressionally-mandated sales originally designed to raise revenue under bills passed at a time when lawmakers were less concerned about energy security because of a rapid rise in US shale oil production.

The planned releases, scheduled to take place by September of this year, are under review, according to three US-based sources.

Congress already canceled 140 million barrels of required sales last year for the four fiscal years starting in October 2023 at the administration's request.

But the 26 million barrels slated to be sold through September 2023 remain on the books (see table).

The sales required by Congress are separate from the 180 million barrel emergency drawdown approved last March, which were intended to counter the surge in global oil prices following Russia's invasion of Ukraine.

US Energy Secretary Jennifer Granholm outlined a strategy for the SPR on Monday that includes significant repurchases over the next two years.

"These repurchases will continue to be informed by consistent evaluation of the energy market and geopolitical unrest that has disrupted energy flows globally," said a Department of Energy (DOE) spokesperson.

Congressional Complication

Canceling this year's 26 million bbl of scheduled sales, might not be an easy task, however.

Congressional action was needed to cancel the sales for the fiscal years 2024-27, and legislative opportunities to repeal sales scheduled between now and the end of September are scarce in a divided Washington.

West Texas Intermediate (WTI) crude settled little changed at $81.62/bbl on Monday, while global benchmark Brent crude posted a modest gain to close at $88.19/bbl.

The Biden administration has taken a more active approach to releasing oil from the SPR, and late last year said it would purchase barrels to refill it when prices fell to around $70/bbl WTI.

The administration's market management efforts have been viewed skeptically by some Opec-plus sources, who see it as usurping their role in the oil market.

The SPR sales were viewed as contributing to a deterioration of US-Saudi relations last October, but those tensions have since eased.

Refill Plans in Focus

Since late last year, US officials have said they plan to refill the SPR, a move supported by other oil exporting countries and industry experts who point out that the US needs to rebuild a buffer that can be used in the event of a genuine supply shortage.

In the context of those refill plans, the deputy head of the DOE's Office of Petroleum Reserve told lawmakers in December that selling SPR oil while simultaneously trying to replenish the reserve did not make sense.

So far, the agency has not repurchased any barrels. The DOE announced earlier this month that it would not finalize a proposed buyback of 3 million bbl, because it did not receive offers that met its terms for price or quality.

The DOE has scheduled an exchange return of 3.1 million bbl in 2023, and is considering up to 22 million barrels in exchange returns in 2024, the DOE spokesperson noted.

In exchanges, the DOE releases barrels to companies with the expectation that they will be returned with interest, rather than selling barrels outright.

The SPR currently contains 371.6 million bbl of oil, according to the DOE — the lowest level since the 1980s. At its peak, it held about 726 million bbl.

Market Management Tool

After the Biden administration's big drawdown of SPR crude in 2022, US lawmakers are seeking to influence how presidents can use the reserve in the future.

Granholm hit out on Monday at a bill from the House's Republican majority that would block the administration from releasing barrels from the SPR until it draws up plans to increase oil production on federal lands.

That bill "would impose unnecessary, unhelpful restrictions on when the SPR can be used to help provide supply," Granholm told a White House press briefing.

If Congress were to advance the bill, she added, US President Joe Biden would veto it.

Lawmakers are also proposing other SPR-related measures. Earlier this month, the House passed a bill that would block sales of SPR barrels to China.

And last week, Democratic lawmakers introduced a bill aimed at using government-owned strategic oil stocks to keep crude prices in a range of $60-$90/bbl and block oil exports to China, Russia, Iran, North Korea or other countries under US sanctions.

Future Congressionally Mandated Sales (Fiscal Years)
Eliminated SalesEnergy Security and Infrastructure Modernization-1010------
FAST Act-2525------
Bipartisan Budget Act 2018---3535----
Remaining SalesEnergy Security and Infrastructure Modernization10--------
FAST Act16--------
Tax Cuts and Jobs Act*---3.53.5----
America's Water Infrastructure Act 2018-----5---
Infrastructure Investment and Jobs Act†-----21.921.921.921.9
New Total26003.53.526.921.921.921.9

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