Despite the recent decline in prices, the price of WTI Crude appears to be respecting the price range of $67-72 that the Biden administration set for the replenishment of the Strategic Petroleum Reserve (SPR). The DOE has announced that it plans to purchase the SPR oil at these prices, a move that will provide certainty to the oil industry and protect taxpayers from volatile market movements.
The SPR has more than 400 million barrels of oil remaining, the largest inventory of emergency crude oil in the world. The reserve has been used by the Obama administration to manage spikes in oil prices and to ensure that there is enough crude to meet domestic demand. But the release of the SPR has drawn criticism from both Democrats and Republicans. The administration has said that it is necessary to release oil from the SPR to stimulate domestic production. It is also believed that this approach will give producers confidence to increase output.
The SPR remains in good shape, but it will need to be refreshed in the coming years to remain relevant. The President directed the sale of 30 million barrels of crude in June 2011, and is expected to order another sale of 60 million barrels in the next year. But senior administration officials are signaling that the President may not be finished tapping the SPR.
As part of the refilling, the Department of Energy (DOE) will issue a Notice of Sale for up to 15 million barrels of SPR oil. The sale will take place in December, adding about 500K barrels of supply to the market each day. The DOE will also finalize a rule to allow fixed-price contracts to be used in the future delivery of crude oil. This will encourage short-term production, provide certainty to the industry, and ensure that the cost of oil to the taxpayer is the same as the price when the commitment is made to buy the barrels.
A key component of the SPR is its ability to respond to the needs of the international community. As part of its foreign policy, the United States has a duty to respond to disruptions in global oil supplies. To address this, the SPR has entered into negotiated contracts with private companies to address short-term supply disruptions. This strategy has helped stabilize the crude oil markets and lower pump prices. The release of the SPR has reduced gas prices by about $0.40 a gallon, according to the Treasury Department.
In June, the President directed the sale of 30 million barrels, which offset disruptions in supply due to unrest in Libya. The release was also part of the United States’ response to the ongoing instability in global crude oil supply flows caused by Russia’s actions in Ukraine. In addition, the SPR has entered into a contract with the IEA to release 60 million barrels of petroleum. The SPR is an important national security asset.
The Biden administration has been trying to make energy costs more affordable, and the latest release of the SPR is intended to do just that. However, the recent decline in prices has put the price of WTI Crude at a level that is below both the $67-72 range that the Biden administration has set for the replenishment of the SPR and the 78.6% retracement of the 2021-2022 movement.