US DOE outlines crude purchase plan to refill SPR after massive drawdown

The US Department of Energy plans to buy back 60 million barrels of crude for the Strategic Petroleum Reserve -- or one-third of the massive drawdown that just started flowing -- at lower prices, likely in the second half of 2023.

In outlining the plan to refill the emergency oil stockpile based on a future delivery window, DOE said it was aiming to encourage US drillers to boost activity now and "lower prices this year by guaranteeing this demand in the future at a time when market participants anticipate crude oil prices to be significantly lower than they are today."

Crude oil from the largest drawdown in SPR history started hitting the market this month and will continue flowing through October. The release of 180 million barrels in response to the war in Ukraine curbed oil price outlooks as refiners sought to replace Russian supplies.

S&P Global Commodity Insights expects crude prices to average $100-$110/b through August, then ease by the end of the year.

Elevated oil prices

The Biden administration announced the SPR drawdown as it sought to shore up global oil supplies, help Europe curb its dependence on Russian oil imports, and ease domestic energy prices contributing to the highest US inflation in 40 years.

In the first auction for 30 million barrels, refiners and oil traders paid $105.60/b on average, with successful bids ranging from $103.30/b to $111.25/b, according to an S&P Global analysis of the contracts.

WTI crude futures were lower than those levels during the bidding period, reflecting expectations for sustained high oil prices when the barrels are delivered from mid-May through June.

NYMEX WTI settled between $99.27/b and $103.28/b over the April 1-12 bidding period.

The top buyers in the latest sale were Valero with 6.85 million barrels, Motiva Enterprises with 4.05 million barrels and ExxonMobil with 3.6 million barrels.