I Want to Break Free - The Upcoming Release of Crude Oil from the Strategic Petroleum Reserve

As the year 2020 wears on, it seems that every month brings a new surprise. In August, in addition to the ongoing pandemic and protests, a major hurricane was added to the mix. What comes next is anybody’s guess. A zombie apocalypse? An alien invasion? At this point, the possibilities seem boundless. And the energy industry has been no stranger to this year’s turmoil, what with COVID-related demand destruction, an oil-price collapse, and production shut-ins. Amidst the chaos, the Department of Energy (DOE) announced that for the first time, private-sector energy companies would be allowed to store crude oil in the U.S.’s Strategic Petroleum Reserve (SPR), which resulted in the leasing of 23 MMbbl of capacity. Recently, those volumes have begun to be drawn back out. Today, we examine the factors influencing movements of crude oil into and out of the U.S. SPR.

RBN is pleased to announce that today’s blog is the winning submission in our first-ever blog writing competition held for students in Texas A&M’s Trading Risk & Investment Program (TRIP). For more about the contest and links to other top entries, click here.

April was quite a month for crude oil, complete with the price of WTI dropping to unprecedented levels — even going negative for a day, as we discussed in One Way Out. Even before the bottom fell out though, in early April, the DOE was scrambling to cope with the fallout of the OPEC+ price war and rapidly deteriorating global crude demand due to COVID (see Things That Matter). In an attempt to stymie further price shocks and stabilize the market by absorbing some of the oil glut, the Trump administration directed the Secretary of Energy, Dan Brouillette, to fill up the SPR. To comply, the DOE announced on April 2 that it would lease up to 30 MMbbl of crude storage space in the SPR to private energy companies for the first time. It was a stunning decision to many in the industry; however, given the abundance of unceasing surprises which have occurred this year, this action was quite fitting with the what’s-next uncertainty that has ensued in 2020.

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