By Timothy Gardner
WASHINGTON (Reuters) – The Biden administration is set to make a significant move by seeking up to 6 million barrels of oil for the Strategic Petroleum Reserve, according to a reliable source on Tuesday. This purchase, if completed, will be the largest yet in the replenishment of the reserve after a historic sale in 2022.
The administration is expected to announce the solicitation as early as Wednesday to procure oil for delivery to the Bayou Choctaw site in Louisiana, one of the four heavily guarded SPR locations along the coasts of Louisiana and Texas.
The U.S. plans to purchase the oil from energy companies for delivery in the first few months of 2025, taking advantage of the relatively low crude prices currently below the target price of $79.99 per barrel, at which it aims to buy back oil after the 2022 SPR sale of 180 million barrels over six months.
Despite West Texas Intermediate oil reaching $71.70 a barrel on Tuesday, following disruptions from Hurricane Francine in the Gulf of Mexico last week, concerns about demand have kept prices relatively subdued in recent weeks.
President Joe Biden had announced the 2022 sale, the largest ever from the reserve, in response to Russia’s invasion of Ukraine, one of the world’s top three oil producers, which had driven gasoline prices to over $5 a gallon.
So far, the administration has repurchased more than 50 million barrels after selling the 180 million barrels at an average of about $95 a barrel, according to the Energy Department.
While oil prices are currently below the target buyback price, potential conflicts in the Middle East and other factors could swiftly escalate oil prices. In April, the U.S. canceled an SPR oil purchase due to rising prices.
The reserve currently holds 380 million barrels, predominantly sour crude, which many U.S. refineries are equipped to process. Its highest inventory level was nearly 727 million barrels in 2009.
Analysis:
The Biden administration’s decision to purchase up to 6 million barrels of oil for the Strategic Petroleum Reserve signifies a strategic move to bolster the nation’s energy security. This purchase comes amid relatively low crude prices and ongoing geopolitical tensions that could impact oil markets.
Investors should closely monitor how this procurement impacts oil prices and market dynamics, as any significant fluctuations could have ripple effects on various sectors of the economy. Consumers may also see changes in gasoline prices depending on the outcome of this purchase.
Overall, the administration’s actions regarding the Strategic Petroleum Reserve highlight the importance of strategic energy planning and its implications for both domestic and global energy markets.