US to sell additional 20 million barrels of oil from strategic reserve

The Biden administration on Tuesday said it will sell an additional 20 million barrels of oil from the Strategic Petroleum Reserve as part of a previous plan to tap the facility to calm oil prices boosted by Russia’s invasion of Ukraine and as demand recovers from the pandemic.

The administration said in late March it would release a record 1 million barrels of per day of oil for six months from the SPR, held in hollowed-out salt caverns on the coasts of Louisiana and Texas.

The US has already sold 125 million barrels from the reserve with nearly 70 million barrels already delivered to purchasers, a senior administration official told reporters.

The SPR releases have been a "supply lifeline" to oil and refining companies as the industry continues to get oil production back online after declines during the peak of the Covid-19 pandemic, the official said.

The US Energy Information Administration, the statistics arm of the Energy Department, said this month that US oil output will rise to more than 11.9 million barrels per day (bpd) in 2022 and to nearly 12.8 million bpd in 2023, from about 11.2 million bpd in 2021. That compares with a record near 12.3 million bpd in 2019.

The US will take bids in autumn to begin the process of buying back 60 million barrels of crude for reserve, a first step in replenishing the stockpile after the 180 million barrel release, the Department of Energy said in May. 

The department will soon propose a rule to help put oil back into the SPR, where levels have sunk to 475.5 million barrels, the lowest since June 1985, by allowing it to enter forward contracts to purchase oil in future years at fixed, preset prices.

"What it means in practice is that producers would have more certainty about future demand for their product, and that would encourage investment in production today," a senior US official told reporters.

Oil purchases to replenish the SPR will not be competing with demand for oil in the near term as they will likely take place after fiscal year 2023, an official told reporters.

A US Treasury Department analysis showed that the SPR releases, along with coordinated releases from international partners, have reduced gasoline prices at the pump by as much as 40 cents per gallon, compared to what they otherwise would have been.

International oil prices fell on Tuesday on the SPR sale and on consumer concerns about inflation and interest rates. Brent crude futures settled at US$104.40 a barrel, down 75 cents.