- Further releases of oil from the Strategic Petroleum Reserve could cripple the Biden administration, analysts say.
- The key reserve will reach 346 million barrels after the next release in April.
- “Allowing this withdrawal to take place has put undue strain on U.S. resources and limits our ability to respond to a surge in the oil market.”
Analysts say more releases from the Strategic Petroleum Reserve could cripple the Biden administration’s ability to weather a future oil shock.
President Joe Biden, who has been outspoken about using the SPR to drive down gas prices, unloaded more than 200 million barrels of oil from the reserve last year as the war on the Russia versus Ukraine shook the energy markets. The SPR, the world’s largest emergency oil stockpile, is now at its lowest level since 1983.
It will be mined further in April with a congressional-mandated sale of 26 million barrels, bringing the level to 346 million barrels — nearly half of what it was when Biden took office. While that’s still more than last year’s release, it might actually be less.
The International Energy Agency requires members like the United States to hold a minimum level of collective responses. RBC Capital Markets estimated the US bond to be around 315 million barrels. The minimum may include private sector inventories, but these are considered less reliable than the SPR.
And with the global energy market still uncertain a year after Russia invaded Ukraine, the United States could be vulnerable.
“Allowing this withdrawal to take place has put undue strain on US resources and limits our ability to respond to an oil market spike,” said James West, senior managing director of Evercore ISI.
Russia has signaled that it is not done using energy as a weapon against the West. Earlier this month, oil prices jumped after the The Kremlin has announced that it will reduce its crude production 5% in response to sanctions.
Meanwhile, OPEC does not plan to increase oil supply after cutting production last year. Saudi Arabia’s energy minister said on Tuesday that quotas set in October would remain in place until 2023 and said the threshold for change was high.
In the United States, the additional supply is also limited. Big oil companies have prioritized using their capital to increase shareholder returns rather than pumping more crude. This trend is unlikely to reverse. Last month, Chevron spear a massive $75 billion share buyback program — triple its previous buyout — and increase its quarterly dividend by 6%.
And on the demand side, China is expected to consume more oil as it continues to exit its zero-COVID policies, adding more pressure on supplies and prices.
“Once the US SPR drops to 346 million barrels following said release, there will be very little opportunity for the White House to release other strategic stocks,” said Viktor Katona, senior crude analyst at Kpler.
He acknowledged that the United States is less dependent on oil imports, as domestic crude production has soared in recent years, meaning an external shock would hit differently than it did a decade ago, for example. .
At the same time, the SPR is a safety buffer “in case all hell breaks loose,” like a pipeline explosion, Katona added.
“So the 346 million barrels will most likely still be acceptable. It’s just the winding down of options that is somewhat concerning,” he said.