President Joe Biden is looking to use more crude withdrawals and purchases from the US Strategic Petroleum Reserve (SPR) to target a "good price" for consumers and producers.
Biden today ordered a 15mn bl crude sale from the SPR that will mark the end of a record 180mn bl drawdown he ordered in response to Russia's invasion of Ukraine. But he said he was ready to order more drawdowns this winter if prices spike, or to buy crude to replenish the SPR if prices are at or below the $67-72/bl range. Biden believes the ability to buy and sell crude will moderate prices and offer producers more certainty to invest.
"Companies can invest to ramp up production now with confidence they'll be able to sell their oil to us at that price in the future," Biden said. "Refining and refilling the reserve at $70/bl is a good price for companies, and it's a good price for taxpayers."
The White House's policy approach envisions repurposing the SPR, which holds 405.1mn bl of crude and is nearly 57pc full, as a tool to moderate oil price volatility in the coming years. In addition to buying crude for immediate delivery, the US Energy Department has separately finalized a rule that will allow it to buy fixed-price crude for the SPR for future delivery at $67-72/bl, which it says will shore up demand for oil when prices are lower.
"Companies will know in the US that there's a sort of floor, putting there at around $70 that will allow them a certainty for investments today to increase production," US top energy envoy Amos Hochstein said in a televised interview.
But oil industry officials worry the latest emergency crude release from the SPR, along with other SPR sales and purchases, create the risk of masking valuable price signals in the energy markets.
"The SPR was never meant to serve as a substitute for actual crude oil production," American Fuels & Petrochemical Manufacturers chief executive Chet Thompson said. "At best, SPR releases are a short-term fix, not a long-term solution or signal of stability to a market craving reassurance."
Biden's decision to release an additional 15mn bl from the SPR comes at a time of heightened uncertainty in global energy markets. Russian president Vladimir Putin is threatening not to sell crude to countries that impose a price cap that is scheduled to begin on 5 December. Opec+ countries earlier this month cut crude output targets by 2mn b/d for November.
Republicans say that Biden is using SPR for political purposes to try to ease fuel prices before the midterm elections on 8 November. The SPR is at its lowest level since 1984, with 233mn bl of crude withdrawn in Biden's term. Biden is depleting the SPR to "cover up his anti-American, ‘rush-to-green' environmental agenda," US House Energy and Commerce Committee ranking member Cathy McMorris Rodgers (R-Washington) said.
The White House says the latest SPR release was not politically motivated but part of a long-term effort to support supplies after Russia's invasion. Biden said his administration has "not slowed or stopped US oil production," which is now averaging 12mn b/d, or about 1mn b/d more than when he took office, and urged oil companies to increase output further.
"You're sitting on record profits, and we're giving you more certainty," Biden said. "So you can act now to increase oil production."
In the upcoming SPR sale, the US will offer up to 6mn bl of sweet crude from the West Hackberry SPR facility in Louisiana, up to 6mn bl of sweet crude from the Big Hill SPR facility in Texas, and up to 3mn bl of sour crude from the Bryan Mound SPR site in Texas. All of the crude will be delivered from 1-31 December.
