After an unprecedented 180 million barrel release spread over several months to battle energy price increases brought on by Russia’s invasion of Ukraine, the US Department of Energy on December 16 revealed preparations for its first repurchase of oil to start rebuilding the Strategic Petroleum Reserve, as reported by S&P Global.
Emergency exchange
The DOE issued a solicitation for up to 3 million barrels of sour crude for delivery in February to the Big Hill SPR site in Texas.
Bids of at least 300,000-barrel minimum offer quantities are due by 1 pm CT Dec. 28, and contracts will be awarded no later than Jan. 13, according to the solicitation.
The department will also facilitate an emergency exchange from the SPR of roughly 2 million barrels to meet refinery supply needs, in response to the partial shutdown of TC Energy’s Keystone pipeline following a leak that spilt about 14,000 barrels of crude in Washington County, Kansas.
The department in October laid out a plan for repurchasing crude to replenish the SPR when WTI crude oil was at or below $67/b-$72/b.
With WTI prices around $74/b, “we think that’s in the range that it’d be very useful to put this [repurchase] notice out now and to see what the market would provide in terms of interest and at what price level for that February buyback,” the DOE official said on condition they not be named.
Crude volumes at the SPR are currently at their lowest level since 1984.
Future replenishment plans
Analysts at ClearView Energy Partners said the relatively small volume of the buyback was likely a test of the DOE’s new fixed-price contracting authorities.
“The timing could reflect several considerations, however.”
DOE officials are working on options to delay or cancel some of those sales scheduled to take place in fiscal years 2024 through 2027.
The DOE would need congressional approval to not pursue those sales, which would account for 147 million barrels over that four-year period, according to an analysis by S&P Global Commodity Insights.
The DOE official on the call with reporters indicated that conversations with lawmakers on that front have been productive.
“So we’re hopeful, but of course, we don’t speak for Congress.”
‘Ready to respond’
SPR releases have received praise from the Biden administration for helping to reduce gas costs. Since their peak in June, national retail gasoline prices have dropped by more than $1.80/gal, and crude prices have decreased by roughly $50/b.
As his government evaluates options for restoring stability to the world’s oil markets and alleviating domestic pump prices, President Joe Biden has hinted that additional releases from the SPR may be forthcoming.
The DOE source stated that the SPR “remains poised to respond to energy security demands now, as DOE executes this strategy to refill the SPR to previous levels in the future years.”
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Source: S&P Global
