Update on the Strategic Petroleum Reserve

Spoiler alert: current levels are lower than expected and are not likely to be replenished anytime soon, leaving the U.S. vulnerable to oil supply disruptions

When President Biden was sworn into office on January 20, 2021, the Strategic Petroleum Reserve held 638 million barrels of crude oil. On August 15, 2022, after President Biden announced a drawdown of the SPR to lower gasoline prices, I posted an article titled: “Draining the Strategic Petroleum Reserve is Bad Policy and Dangerous.” It began: “At the current drawdown rate, the SPR will be at a 40-year low of 358 million barrels by October this year when withdrawals are slated to end. One year ago, the SPR contained 621 million barrels of crude oil. Unfortunately, there is a real possibility that the White House will not stop drawing down the SPR in October because the mid-term elections are in November, and they will not want to risk the political effects of skyrocketing crude oil and gasoline prices.”

On September 30, I published this update:  “As reported by the EIA on September 23, 2022, the latest data available as of this writing, the amount of crude oil remaining in the SPR is 422.583 million barrels, the lowest level since July 1984. In addition, if the DOE sells 10 million barrels per day in October and November, as announced, the volume of crude oil stored in the SPR will be 402 million barrels on December 1, 2022, the lowest level since May 1984.” 

As expected, the Biden Administration announced on October 5 that it was releasing an additional 10 million barrels of crude oil due to the OPEC+ production cuts. By November 11, 2022, the SPR had declined to 392,119,000 barrels due to the withdrawal of 246 million barrels since Biden took office. This leaves the SPR at its lowest level since March 1984.

As its name suggests, the Strategic Petroleum Reserve was created in 1975 to help prevent a repeat of the economic dislocations caused by the 1973-1974 Arab oil embargo. The SPR had been successfully drawn down numerous times to help stabilize U.S. crude oil markets after hurricanes shut down offshore platforms in the Gulf of Mexico, pipeline problems, ship channel closings, and Operation Desert Storm in 1991. 

As a reminder that the SPR may be needed at any time, the Keystone Pipeline, which brings heavy-high sulfur crude oil from Canada to U.S. refineries on the Gulf Coast, developed a leak that forced a complete pipeline shutdown. As of today, there is no announced date for a restart, leaving some U.S. refineries short of crude oil at a time when diesel fuel shortages are on the horizon.

The DOE announced Friday, December 16, 2022, that it would allow ExxonMobil and Phillips 66 refineries in Baytown, Texas, to borrow 1.2 and 0.6 million barrels of crude oil from the SPR for a short period, which is expressly permitted by the DOE and has been done before. Unfortunately, this is not nearly enough crude oil to keep those refineries running for long, setting the stage for price spikes in gasoline, diesel, and home heating oil if the Keystone Pipeline is not back in operation soon. After the SPR had been drawn down to 1984 levels for political purposes, the U.S. is facing a real emergency of more spikes in the prices of refined products. 

Unfortunately, the bad news doesn’t stop there. It has not been widely publicized that both the Obama and the Biden administrations quietly made deals with Congress that obligated future drawdowns of the SPR. Recently, HR 3684, the much-touted “Infrastructure Investment and Jobs Act” passed in August 2022, contained a little-noticed provision on page 914 mandating that the Secretary of Energy “shall draw down and sell from the Strategic Petroleum Reserves 87,600,000 barrels of crude oil during the period of fiscal years 2028 and 2031.” This was one of the legislative “tricks” that Congress sneaks into bills to offset spending, referred to as “paid-fors” when the Congressional Budget Office scores the bill.

This is not the first time such a legislative trick utilizing the SPR has been buried in a congressional bill. The Obama-Biden administration obligated sales from the SPR of 58 million barrels of oil from the SPR in the Bipartisan Budget Act of 2015 and then again in the “2015 FAST Act in 2015, which obligated the sale of 66 million barrels of SPR oil during fiscal years 2023-2925. Similar legislation obligating sales of SPR crude oil was included in the 2017 Tax Revision Act, the Bipartisan Budget Act of 2018, and America’s Water Infrastructure Act of 2018. 

All told, these bills have obligated the sale of 358.6 million barrels of oil, of which 288.1 have yet to be sold. When these mandated sales of SPR crude oil are executed, today’s 380 million barrels of SPR reserves will decline to 92 million barrels of oil, which is less than five days of our current daily consumption of crude oil. 

The Biden Administration recently announced they would refill the SPR by paying $67 to $72 per barrel. However, spot prices are higher and are poised to go even higher due to the uncertainties of the Ukraine situation, Europe’s energy shortfalls with a bad winter getting underway, and Russia’s saber-rattling responses to the G7 price caps, so crude oil prices are unlikely to fall that much anytime soon.

The bottom line is that the U.S. Strategic Petroleum Reserve is dangerously low, putting the U.S. in a very weak and vulnerable position. Once again, politics, not sound energy policy, is to blame.