President Joe Biden's administration has delayed by up to two years a requirement for oil companies and traders to return about 15.3mn bl of crude that have been loaned out from the US Strategic Petroleum Reserve (SPR).
Oil companies and traders were initially scheduled to return up to 19mn bl of crude to the SPR from June-September and to return up to 8mn bl of additional crude over the following year. The US Department of Energy (DOE) loaned out most of that crude in 2022 because of supply shortages related to the war in Ukraine and a temporary shutdown of the Keystone pipeline. DOE had loaned the crude using a mechanism called an "exchange," under which companies agree to return the crude to the SPR at a later date, along with an in-kind payment in exchange for the loan.
But over the last two months, DOE has modified at least nine contracts with ExxonMobil, Shell and other companies that had borrowed the crude, delaying the return of about 15.3mn bl of the borrowed crude to the SPR until 2026, according to contract modifications Argus Media obtained after filing a request under the Freedom of Information Act.
DOE said it delayed the return of the exchange crude in support of a separate SPR program, where it has directly purchased more than 27mn bl of crude that will be added the SPR's Big Hill storage site in Texas. That purchase program will inject about 3mn bl/month to the SPR through the first nine months of this year, and DOE last week restarted efforts to buy more crude for the SPR for delivery starting in October.
"These actions strategically moved back exchange returns to take advantage of stable crude oil market windows to directly purchase oil at a good price for taxpayers, while having consistently available capacity to drawdown in the event of an emergency," DOE said.
The nine contract modifications were signed between 26 March and 16 April, at a time when Nymex WTI spot prices briefly surged past $80/bl, to the highest price in more than five months. Delaying the return of the exchanges will effectively free up crude that would otherwise have been injected into the SPR in June-September, during the peak of the summer driving season. Nearly all of the revised contracts will delay the return of "all remaining exchange oil" until July-October 2026.
Republicans have repeatedly attacked the administration's management of the SPR, which they argue is dangerously low after Biden ordered the emergency sale of 180mn bl of crude from the reserve in 2022 in response to the war in Ukraine. Republicans have pushed the administration to prioritize refilling the SPR, which is at about half of its design capacity with 367.2mn bl of crude, given the value the reserve could have in mitigating supply shortages.
US energy secretary Jennifer Granholm, in congressional testimony in March, said the administration was carrying out a plan to refill the SPR to "essentially where we would have been" if the emergency sales had never happened. DOE has already been able to cancel 140mn bl of congressionally mandated SPR sales and lined up the purchases of more than 30mn bl of crude. DOE also has said it "accelerated" the return of 4mn bl of crude exchanges.
