At first glance, it would appear that President Biden’s announcement regarding the release of up to 180 MMbbl of crude oil from the Strategic Petroleum Reserve over the next six months could have a significant impact. After all, it would, in a sense, increase the flow of U.S. oil into the market by almost 9% –– 11.7 MMb/d of current U.S. production plus an incremental 1 MMb/d from the SPR — and boost global supply by about 1%, which is no small thing. There are a few unknowns, though, such as (1) how much sweet crude oil and how much sour will be released, (2) where the pipelines connected to the four SPR sites could take that oil, (3) whether those pipelines have sufficient capacity to absorb the incremental flows out of SPR, and (4) what the ultimate market impacts of the SPR releases will be. In today’s RBN blog, we look at the president’s announcement and its implications.
The U.S. SPR is the largest emergency stockpile of crude oil in the world, with an authorized capacity of 714 MMbbl. It was established in the mid-1970s in response to the 1973 oil crisis to mitigate domestic supply disruptions. In the past few decades, it has been used to store crude for a rainy day — that is, to help deal with unpredictable events such as embargoes or devastating hurricanes that interrupt supply. Now, as President Biden announced on Thursday, the U.S. Department of Energy (DOE) will coordinate the release of 1 MMbbl per day for 180 days from the SPR to help restore the global oil supply/demand balance and put downward pressure on oil prices. If the releases continue for more than a month, they would represent the largest single withdrawal from the SPR ever.
The SPR contains both domestic and foreign crude oils and, for the most part, these are of light gravity (30 to 40° API) and contain less than 2% sulfur. The DOE commingles the crudes according to their sulfur content –– sweet (less than 0.5% sulfur) or sour (greater than 0.5% but less than 2%). There are currently four SPR storage sites in operation. Moving from west to east in the map in Figure 1 below, they are:
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