US DOE to buy 6 mil barrels of sour crude for October, November delivery to continue SPR refill

The US Department of Energy July 7 announced plans to repurchase about 6 million barrels of sour crude as the Biden administration continues its initiative to replenish the Strategic Petroleum Reserve.

The DOE issued a solicitation for the 6 million barrels of sour crude for delivery in October and November to the Big Hill SPR site in Texas. Bids of at least 300,000-barrel minimum offer quantities are due by 10 am CT July 19, and contracts will be awarded no later than Aug. 3, according to the solicitation.

The department said it "will pursue additional repurchase opportunities as market conditions allow."

Crude volumes at the SPR stood at 347.16 million barrels the week ended June 30, according to the US Energy Information Administration, the lowest level since August 1983.

The DOE in October laid out a plan for repurchasing crude to replenish the SPR when WTI crude oil was at or below $67-$72/b.

NYMEX front-month crude settled up $2.06 at $73.86/b July 7, extending a rally in place since late June on OPEC+ supply cuts and high refinery runs.

The DOE has again opted not to use new fixed-price contracting authorities finalized last year that would allow it to pay a fixed price for crude at the time a transaction is executed. Instead, the latest solicitation specifies that it will buy oil at a price "determined by the average (to the $0.001) of daily settlements for the NYMEX WTI ... respective delivery month contract ... for the three trading days commencing with day of notice of award," with some adjustments.

The solicitation is part of the Biden administration's three-part SPR replenishment plan, which centers on "direct purchases with revenues from emergency sales, exchange returns that include a premium to volume delivered, and securing legislative solutions that avoid unnecessary sales unrelated to supply disruptions," the DOE said in a press release.

Its first solicitation, issued in December, resulted in no awards as the DOE deemed that the price and other factors would not have been a good deal for taxpayers. But it has since conducted two solicitations for a combined 6.3 million barrels at an average price of $72.67/b, more than $20/b below the average $95/b price that SPR crude was sold at last year.

The largest-ever drawdown from the emergency stockpile last year saw an unprecedented 180 million barrels released over several months to combat energy price hikes spurred by Russia's invasion of Ukraine. The DOE has committed to buying back oil at a lower price to make a return for taxpayers.