Oil & Gas News

US to restart crude purchases for the SPR

The Energy Department is resuming its Strategic Petroleum Reserve replenishment program soliciting for up to 3.3 million barrels of crude oil.

Big Hill is a federally-controlled underground petroleum storage site, one of four in the Strategic Petroleum Reserve program of the US Government. Along with another site in Texas (the Bryan Mound site near Freeport), and two in Louisiana, these sites can hold over 700 million barrels of crude, equivalent to two months of domestic consumption. Intended as an emergency supply for the nation, releases from the reserve have been used to manipulate the market. Big Hill was made between 1987 and 1991, and is connected by a 25 mile long, 36 inch wide pipeline to a terminal in Nederland. Like the other sites, Big Hill is a naturally formed underground salt dome with excavated cavities used to hold the oil. Each of the 14 cavities at Big Hill is around 2,000 feet in height, 200 feet wide, and can hold 12 million barrels.

Story By Eamonn Brennan | S&P Global |The United States Department of Energy issued a solicitation for its latest refill of the Strategic Petroleum Reserve (SPR) on May 7, seeking to purchase up to 3.3 million crude barrels as the Biden administration resumes its price-sensitive strategy of refilling the nation’s reserve of crude.

The solicitation is a “continuation of DOE’s strategy of consistent solicitations aimed at purchasing oil when it can purchase at a good deal for taxpayers: a price around $79 or below,” DOE said in the statement announcing the solicitation, signaling continued interest in refilling reserve at its own previously touted price targets.

“DOE will continue to evaluate options to refill the SPR while securing a good deal for taxpayers, taking into account planned exchange returns and market developments,” the statement said.

The solicitation is for an October delivery to the Big Hill storage site in Jefferson County, Texas.

Changing strategy

Since selling 180 million barrels in 2022 at a cost of around $95/b — a sale made to ward off potential price spikes following Russia’s invasion of Ukraine, which the Department of Treasury now argues reduced US gasoline prices by as much as 40 cents/gal — the Biden administration has purchased back 32.3 million barrels at an average price of $76.98/b in a flurry of scheduled purchases throughout 2023 and early 2024.

In early April 2024, the DOE cancelled two proposed solicitations for 1.5 million barrels each, to be delivered to the Bayou Choctaw storage site in September, after price increases and concerns about demand effects of steady SPR refills moved prices beyond the administration’s stated $79/b target. In late March, the DOE went ahead with a purchase of 2.8 million barrels at an average price of $81/b, removing language about the $79/b target from its announcement.

In the following week, Iran accused Israel of conducting an airstrike on its consulate building in Syria, and a previously sanguine global oil market began to tighten around concerns of a larger regional conflict in the Middle East.

“As always, we monitor market dynamics to remain nimble and innovative in our successful replenishment approach to protect this critical national security asset,” a DOE spokesperson said in an email April 3.

Replenishment nearly complete

Despite the brief refill pause in April, DOE has nearly followed through on its commitment to return all 180 million barrels it sold in 2022. Besides the direct purchases, the agency is no longer required to sell more than 140 million barrels of crude through 2027 which would have been congressionally mandated prior to a 2022 legislative fix that eliminated SPR sales unrelated to supply disruptions.

“The US SPR has added 12.5 million barrels since the beginning of 2024, and an additional 18.4 million barrels are anticipated to be refilled by October 31, 2024,” said S&P Global Commodity Insights analyst Rishabh Sharma. “The latest proposal for the Big Hill SPR storage site aligns with the monthly cadence of solicitations observed for that site since October 2023.

“The maximum purchase price for barrels scheduled for delivery in October 2024 is capped at $79.99/b,” Sharma said. “Except the September 2024 purchase, which was made for $81.32/b , all other purchases this year have been below $80/b.”

To date, the DOE has accounted for about 176 million barrels, which will increase to over 179 million if the October Big Hill purchase is completed.

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