The United States government has been stalling on replenishing its strategic oil reserve because it is receiving offers that are “too expensive.”
Following the conflict in Ukraine, the Biden administration made no qualms about rapidly draining the SPR by 1mmb/d at the market pricing to bring down gas prices in time for the November elections and prevent an inflationary midterm meltdown.
However, the integrity of the salt caverns the oil is stored is in jeopardy since US emergency inventories have dropped to their lowest level since November 1983 and are not far from an all-time low. White House officials have now “unexpectedly” changed their minds.
A month after the White House announced it would begin replenishing the Strategic Petroleum Reserve with a mere 3 million barrels of sour crude. Sour crude has a high sulfur content, and the purchase was to demonstrate that Biden has their back. It should be noted that the 3 million barrels are a tiny fraction of the 200 million released in 2022. Overnight, it was learned that there was a rather large caveat in the White House’s brilliant plan.
The Biden administration reportedly decided the proposals it got were either too expensive or didn’t satisfy the needed standards, so it has postponed replenishing the nation’s emergency oil stockpile.
According to Bloomberg, the Department of Energy (DOE) turned down several purchase proposals, which cites “people familiar with the matter.” In other words, the SPR won’t receive any more oil unless there is a severe economic downturn in the United States or elsewhere, bringing the price of oil down significantly. This downturn would be caused by the Federal Reserve, which is carrying out Biden’s wish to curb inflation by imposing the highest interest rates in a generation on the American economy.
A source said that while the DOE has delayed the purchase planned for next month, the proposed program, which uses a new technique that considers fixed-price proposals, will proceed. As we can see, this “continues” just so long as oil prices remain below a White House-mandated level. It was reported last year that the Biden administration was planning to begin buying crude at around $70 per barrel. While oil prices did fall during the fourth quarter and US benchmark prices did fall last month, they have since rebounded with the SPR refill price acting as a support.
The Energy Department said in a statement released on Friday that it is dedicated to transitioning from release to replenishment in a way that delivers a “fair deal for taxpayers” and has proposed a long-term strategy to make the change.
DOE will only pick bids that match the required crude standards and that are at a price that is a good bargain for taxpayers,” it said. DOE has decided not to award contracts for the February delivery window after reviewing the initial proposal.
Therefore, in its infinite wisdom, either the White House will have to start chasing oil prices even higher now that it has set a firm floor for oil prices, or the SPR will not see any new oil. The 372 million barrels (20 days’ worth of domestic consumption) will be the total SPR inventory at a time when there are heightened tensions with Russia and China.