The weekly estimate of commercial crude oil inventories in the U.S. Department of Energy’s Weekly Petroleum Status Report — and the week-on-week change in those inventories — are among the most closely watched numbers in the oil sector. And for good reason. After all, the numbers help the market assess shifts in the supply/demand balance, a critical consideration in determining crude oil prices and signaling the need for more — or less — imports, exports, and of course production. In 2017, with a mandated drawdown in the Strategic Petroleum Reserve, it is now important to track weekly withdrawals from the SPR as well because of the effect they can have on commercial stocks. Today we discuss recent and planned SPR drawdowns and their effect on the supply/demand balance and crude oil prices.
An important note: This blog contains a number of references to RBN’s new GUSHER Report, which examines the ins and outs of the U.S. crude oil supply/demand balance and provides insightful analysis of the raw data in the DOE’s Weekly Petroleum Status Report. (If you have not seen GUSHER yet, click here for a free trial.)
The U.S. Strategic Petroleum Reserve (SPR) is the largest government-owned crude oil stockpile in the world with a mission to protect the country during severe supply interruptions. The facility was developed in three phases from 1977 through 1991. In its current form, the SPR is comprised of four oil-storage sites along the U.S. Gulf Coast; the sites were chosen largely because of their proximity to much of the nation’s refining capacity and access to underground salt deposits that can be mined to create storage space for hydrocarbons (see Smoky and the Salt Caverns). Two sites, Bryan Mound and Big Hill, are located in Texas, and the West Hackberry and Bayou Choctaw sites are in Louisiana. In total, these sites offer storage capacity of 713.5 million barrels (MMbbl) through 60 operational underground salt caverns. As we said in Part 1 and Part 2 of our “Need You Now” series, the SPR system is designed for an initial maximum drawdown rate of just over 4.4 MMbbl/d that could be sustained for up to 90 days.