Monthly eNewsletter from the IADC

Washington, D.C., Updates for June 2024

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The U.S. Department of Energy sets an explicit price ceiling to refill oil reserves

The Department of Energy (DOE) has recently increased the price it is willing to pay to replenish the Strategic Petroleum Reserve (SPR), the country’s emergency oil reserves that have diminished to nearly the lowest level in four decades.

The SPR is the world’s largest emergency oil stash. President Gerald Ford created the SPR in 1975 after the Arab oil embargo spiked gasoline prices and damaged the economy. Presidents have tapped the stockpile to calm oil markets during war involving oil producing countries or when hurricanes hit oil infrastructure along the U.S. Gulf of Mexico. The oil is held in heavily guarded underground caverns at four sites on the Texas and Louisiana coasts.

The DOE said that it will pay as much as $79.99 a barrel for oil, the first time the Biden administration has set an explicit price ceiling.

In 2022, the U.S. government sold an unprecedented 180 million barrels following the Russian invasion of Ukraine, and after gasoline prices soared, adding to inflation concerns. It’s a tool that’s closely monitored by oil watchers, as an opening of the taps can send crude prices lower.

The SPR currently holds 367.2 million barrels, with an authorized storage capacity of 714 million barrels. The DOE is seeking to buy 3.3 million barrels of sour oil for October 2024 delivery. Sour crude is often refined into heavy oil products like diesel and fuel oil, rather than gasoline.

The DOE’s move to set an explicit price ceiling for replenishing the Strategic Petroleum Reserve underscores the importance of rebuilding the nation’s emergency oil stockpile, which serves as a critical buffer against potential disruptions in global energy markets.