Biden Administration Cancels Latest Oil Reserve Refill Plan Amid High Prices

(Reuters) — The U.S. has canceled the purchase of about 3 million barrels of oil for the Strategic Petroleum Reserve due to rising prices, slowing down the pace of replenishment after a historic sale from the emergency stockpile in 2022.

The Department of Energy said on Wednesday it will not award contracts for solicitations offered last month of 3 million barrels of domestically produced crude oil, for the Bayou Choctaw, Louisiana site. The oil had been slated for delivery in August and September.

Here are the facts about the SPR and efforts to put oil back in.

RELATED: Biden Administration Buys Oil for Emergency Reserve Above Target Price

What Is the SPR?

It is the world's largest emergency oil stash. Former President Gerald Ford created the SPR in 1975 after the Arab oil embargo spiked gasoline prices and damaged the economy. Presidents have tapped the stockpile to calm oil markets during war involving oil producing countries or when hurricanes hit oil infrastructure along the U.S. Gulf of Mexico. The oil is held in heavily-guarded underground caverns at four sites on the Texas and Louisiana coasts.

How Much SPR Oil Was Sold in 2022?

In 2022, the administration of President Joe Biden announced a sale of 180 million barrels of oil over six months from the reserve, the largest ever SPR sale, in an attempt to lower gasoline prices after Russia invaded Ukraine. The DOE also conducted a sale of 38 million barrels in 2022 that had been mandated by Congress.

What Price Does the U.S. Want to Buy SPR Oil?

The administration says it sold the 180 million barrels at an average of about $95 a barrel. It wants to buy back oil at $79 a barrel or less. The West Texas Intermediate oil price of nearly $86 a barrel O/R on Wednesday could prevent future purchases if it stays at that level or rises. The price extended gains after Ukrainian attacks on Russian refineries, on the potential for the Middle East conflict to escalate, and as OPEC+ ministers held steady their output policy.

How Much Is Coming Back?

The administration has so far bought back about 32.3 million barrels of domestically-produced crude oil, since the 2022 sales, it says. The DOE says it has also sped up the return of nearly 4 million barrels to the SPR from loans to oil companies.

Buybacks of much larger volumes could also risk pushing up oil and gasoline prices ahead of the Nov. 5 presidential election. Energy Secretary Jennifer Granholm said on Feb. 21 the U.S. was being careful not to do anything to remove supply from the market when prices might be high.

Current SPR Level

The reserve currently holds 363.6 million barrels, nearly 60% of which is sour crude, or relatively high sulfur oil which many U.S. refineries are engineered to process. The most oil it ever held was nearly 727 million barrels in 2009.

The sales in 2022 sank the SPR to the lowest level in about 40 years. That angered some Republicans who accused the Democratic administration of leaving the U.S. with a thin supply buffer to respond to a future crisis.

The administration says it has a three-pronged strategy to return oil to the reserve. That includes buying back oil, the return of oil loaned from the SPR to companies, and cancelling congressionally mandated sales of 140 million barrels of SPR oil through 2027. Both Democratic and Republican lawmakers had voted for those sales to pay for government programs.

The U.S., which is producing oil at record volumes with more increases expected this year, has more crude in the SPR than required as a member of the Paris-based International Energy Agency, the West's energy watchdog. Under the agreement, the U.S. is required to hold 90 days' worth of net petroleum imports.

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