ShareWASHINGTON: The US Energy Department announced Friday a plan to add oil back to the Strategic Petroleum Reserve (SPR) after a historically large release undertaken by the Biden administration. The policy marks a significant shift after President Biden authorized the biggest-ever release earlier this year following Russia's invasion of Ukraine, which sent oil prices to $120 a barrel.
The plan represents "an opportunity to secure a good deal for American taxpayers by repurchasing oil at a lower price than the $96 per barrel average price it was sold for, as well as to strengthen energy security," the Department of Energy (DOE) said in a news release.
The agency said it will buy up to three million barrels of oil under a pilot program designed to attract sellers who can lock in prices. The SPR currently holds 382 million barrels of crude, down some 216 million barrels from its level before September 2021.
The new emergency exchange is aimed at addressing "potential supply disruptions" caused by the shutdown of the Keystone Pipeline due to a leak earlier this month, the Energy Department said. Part of that key pipeline remains shuttered and no timeline has been issued for a full reopening.
Emergency exchanges allow oil refineries to borrow oil from the SPR for a short period due to supply disruptions such as hurricanes or pipeline outages. Unlike with emergency sales such as the record-setting release of 180 million barrels announced in March, this oil must be returned.
A Biden official said in October that the administration planned to purchase oil to refill the reserve as soon as prices hit around $67-72 a barrel. Crude prices have fallen significantly from their peak levels earlier in the year. On Friday, US benchmark West Texas Intermedia dropped 2.4 percent to $74.29 a barrel.
The DOE announcement noted that gasoline prices have dropped by more than $1.80 a gallon from their June 2022 apex and now stand at the cheapest level since September 2021. Average retail gasoline price stood at $3.178 per gallon, according to the American Automobile Association - down from the record high at $5.02 in June and nearly 15 cents under the year ago level.
The Energy Department will start with an initial request for 3 million barrels, asking companies for the barrels to be delivered in February, the administration official said on a call with reporters. Companies participating in the process must submit their offers by Dec 28 and will offer oil at a fixed price. "There's still quite a bit of volatility in the system," the official said. "When we think the price is in the range where we think it's a good deal for taxpayers and good for the market, we will buy. The buyback will take months, it will take years."
The administration had announced in October it would set up a process to purchase oil from companies to refill the SPR at a price of $67 to $72 a barrel. The department will also offer 2 million barrels for exchange to fuel producers looking to make up supply lost because of the Keystone pipeline transporting crude from Canada to refineries in the U.S. Midwest and Gulf Coast going offline after a spill last week, the official said. - Agencies
