On July 7, the US Department of Energy (DOE) revealed its intention to repurchase approximately 6 million barrels of sour crude oil. This move is part of the Biden administration’s ongoing effort to replenish the Strategic Petroleum Reserve (SPR).
The DOE has called for the delivery of 6 million barrels of sour crude in October and November to the Big Hill SPR site in Texas. Bids for a minimum of 300,000 barrels are due by 10 am CT on July 19, with contract awards expected no later than August 3.
The DOE stated that it would seek additional repurchase opportunities as the market permits. As of the week ending June 30, the SPR held 347.16 million barrels, the lowest level since August 1983, according to the US Energy Information Administration.
In October, the DOE outlined a plan to repurchase crude to refill the SPR when the price of WTI crude oil was between $67 and $72 per barrel. On July 7, NYMEX front-month crude settled at $73.86 per barrel, continuing a rally driven by OPEC+ supply cuts and high refinery runs.
The DOE has chosen not to utilize new fixed-price contracting authorities, which would allow it to pay a fixed price for crude at the time of transaction execution. Instead, the latest solicitation specifies that the DOE will buy oil at a price determined by the average of daily settlements for the NYMEX WTI for the three trading days starting with the day of notice of award, with certain adjustments.
This solicitation is part of the Biden administration’s three-pronged SPR replenishment strategy, which includes direct purchases with revenues from emergency sales, exchange returns that include a premium to volume delivered, and securing legislative solutions to avoid unnecessary sales unrelated to supply disruptions.
The DOE’s first solicitation in December resulted in no awards as the DOE determined that the price and other factors would not have been beneficial for taxpayers. However, it has since conducted two solicitations for a total of 6.3 million barrels at an average price of $72.67 per barrel, more than $20 per barrel below the average $95 per barrel price at which SPR crude was sold last year.
Last year, the largest-ever drawdown from the emergency stockpile released an unprecedented 180 million barrels over several months to counter energy price increases triggered by Russia’s invasion of Ukraine. The DOE has pledged to repurchase oil at a lower price to generate a return for taxpayers.