MOSCOW (MRC) -- On Tuesday, November 23, the White House announced plans to make 50 MM bbl of crude oil available to the market through a combination of exchanges and accelerating previously announced sale, according to Hydrocarbonprocessings.
With these sales and several other legislated drawdowns, SPR inventories could decline from 618 MM bbl (as of October 1, 2021) to about 314 MM bbl by the start of the 2032 fiscal year, the lowest level since March 1983. The Infrastructure Investment and Jobs Act, passed earlier this month, includes a provision to draw down 87.6 MM bbl of crude oil from the US Strategic Petroleum Reserve (SPR) in fiscal years (FY) 2028 through 2031.
The SPR was established in the 1970s to alleviate the effects of unexpected oil supply reductions. The reserve was designed to hold up to 714 MM bbl of crude oil across four storage sites along the Gulf of Mexico, where much of the U.S. petroleum refining capacity is located.
Crude oil can be released from the SPR under four conditions: emergency drawdowns, test sales, exchange agreements, and nonemergency sales. Emergency drawdowns and test sales are relatively rare. The most recent emergency drawdown occurred in 2011 in response to production disruptions in Libya, and the most recent test sale occurred in 2014. The SPR has released crude oil under exchange agreements 12 times since 1996, most recently after Hurricane Harvey in 2017. In these exchange agreements, crude oil is released to private companies and repaid in kind by specified dates with additional bbl, similar to monetary interest on a loan.
Congress has also authorized nonemergency sales of SPR crude oil to respond to lesser supply disruptions or to raise revenue for the US Treasury.
One of the SPR’s core missions is to hold enough oil stocks to fulfill US obligations under the International Energy Program, the 1974 treaty that established the International Energy Agency (IEA). As a member of the IEA, the United States is obligated to maintain stocks of crude oil and petroleum products, both public and private, to provide at least 90 days of US net import protection. The US Department of Energy calculates this value by dividing the SPR inventory level by EIA’s sum for net crude oil and petroleum product imports.
As MRC informed before, US commercial crude stocks fell 3.48 million barrels to 413.96 million barrels in the week ended Sept. 17, to more than 8% below the five-year average, Energy Information Administration data showed. Stocks were last lower Oct. 5, 2018.
We remind that in late August, 2021, US crude stocks dropped sharply while petroleum products supplied by refiners hit an all-time record despite the rise in coronavirus cases nationwide, the Energy Information Administration said. Crude inventories fell by 7.2 million barrels in the week to Aug. 27 to 425.4 million barrels, compared with analysts' expectations in a Reuters poll for a 3.1 million-barrel drop. Product supplied by refineries, a measure of demand, rose to 22.8 million barrels per day in the most recent week. That's a one-week record, and signals strength in consumption for diesel, gasoline and other fuels by consumers and exporters.
We also remind that US crude oil production is expected to fall by 160,000 barrels per day (bpd) in 2021 to 11.12 million bpd, EIA said in a monthly report earlier this year, a smaller decline than its previous forecast for a drop of 210,000 bpd.
MRC