The Strategic Petroleum Reserve, or SPR, will begin receiving repurchased crude oil, according to a Friday announcement from the U.S. Energy Department (DOE). The 180 million barrel release from the stockpile earlier this year set a record; this will be the first purchase since then.
This repurchase gives a chance to improve energy security while also obtaining a fair bargain for American taxpayers by purchasing oil at a cheaper price than the $96 per barrel average price it was sold for.
An approach of fixed-price purchases
According to a senior official, the department will purchase up to 3 million barrels for delivery in February. By January 13 2023, contracts will be given to successful offerors. “This approach will lock in a price upfront when companies submit their bids,” said the official.
President Joe Biden revealed a proposal to restock the SPR in October utilizing revised regulations that permit fixed-price purchases of crude oil.
This innovative strategy, when utilized at scale, can give producers the certainty to undertake investments today, knowing that the price they receive when they sell to the SPR will be fixed in place, as opposed to standard purchase contracts that expose producers to volatile crude prices.
Expected benefits of SPR repurchase
This first step toward implementing the President’s replenishment strategy comes after his historic release from the SPR to address the significant disruption to the world’s supply caused by Putin’s attack on Ukraine and to act as a wartime bridge for rising domestic production.
For American families, the releases have reduced gas prices. The cost of gasoline at the national retail level has already dropped by approximately $1.80 per gallon since June 2022 and is at its lowest point since September 2021. By 10:00 a.m. Central Time on December 28, 2022, DOE must have received bids for this notice.
The Energy Department will also carry out an exchange of around 2 million barrels from the SPR, which firms will have to ship back at a later time, to assist alleviate supply constraints at refineries following an oil disaster last week that shut down the Keystone crude pipeline.
DOE will continue replenishing beyond 3 million barrels
When oil prices were at or below roughly $67-$72 per barrel, which was a little below where U.S. benchmark futures were trading on Friday at about $75, the White House announced in October that it would purchase back oil for the SPR.
“We will continue to determine timing on replenishment beyond this 3 million barrels,” said the DOE official, taking into consideration market dynamics in addition to SPR operational obligations related to congressionally mandated sales, the scheduled return of barrels offered previously under exchanges, and maintenance required to ensure the SPR’s structural integrity.
SPR sales for legislation and deficit reduction were ordered by Congress, and they started in 2017 and are expected to last until 2031. Officials at the DOE are considering possibilities to postpone or halt some of those sales scheduled for the fiscal years 2024 through 2027.
According to an analysis by S&P Global Commodity Insights, the DOE would require congressional approval to forego those sales, which would total 147 million barrels over that four-year period.
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