Further SPR crude releases possible as part of three-step plan to lower fuel costs: Biden

The US will, if conditions warrant, consider further releases of crude from the Strategic Petroleum Reserve even as an historic 180-million-barrel drawdown comes to an end, President Joe Biden said Oct. 19.

A newly announced 15-million-barrel sale for delivery in December will complete Biden's commitment to release roughly 1 million b/d from the SPR over a six-month period. Some 165 million barrels of crude have already been delivered or committed for delivery under the release to help mitigate global supply disruptions caused by Russia's invasion of Ukraine and help lower energy costs.

"I've told my team behind me here to be prepared to look for further releases in the months ahead if needed," Biden said. "We're calling it a ready and release plan. This allows us to move quickly to prevent oil price spikes and respond to international events."

The president pointed to SPR releases as among three critical steps his administration is taking to reduce gasoline prices at the pump. Another entails responsibly increasing US oil production without delaying or deferring the transition to clean energy, while the last involved a call for oil companies to pass savings on to consumers.

'Solution' for industry

Biden insisted that his administration has not stopped or slowed domestic oil production as the country is on track for record oil production in 2023, with output by the end of the year expected to be 1 million b/d higher than production on the day he took office.

In response to oil industry worries that they would not be able to sell oil at a competitive price in the future to get a return on investments made now for additional production, Biden said the administration had a "solution."

Specifically, the Department of Energy, in a move it contends will protect taxpayer interests and encourage more near-term production, announced its intent to buy oil when WTI prices are at or below a range from $67/b to $72/b to refill the emergency stockpile.

"That means oil companies can invest to ramp up production now, with confidence they'll be able to sell their oil to us at that price in the future," Biden said. "Refining and refilling the reserve at $70/b is a good price for companies, it's a good price for the taxpayers and it's critical to our national security."

Oil prices climbed following the news, with NYMEX November WTI settling up $2.73 at $85.55/b.

Richard Joswick, head of global oil analytics at S&P Global Commodity Insights, said the SPR buyback plan would support a floor under the forward curve for 2024-25. He pointed out that WTI for December 2024 is currently around $70/b.

"For US producers, they could choose to hedge with paper [NYMEX contracts] or sales to the US SPR – their choice," Joswick said. "But given the convenience of paper, they might want a higher relative price for sales to the SPR. That implies that the forward curve would need to drop below DOE's $67-72 target price before they sell to the DOE."

OANDA senior market analyst Ed Moya, in a note, called that administration's strategy "smart" as it could "keep a cap on prices and incentivize the oil giants to increase production a little bit."

In upcoming earnings calls, the "oil giants will update their CAPEX plans, and we might get a better understanding if they will appease the White House and deliver more output over the next year despite all the global recessionary fears."

Biden's message to oil companies

Biden also came down hard against oil companies he believes are raking in record profits at the expense of US consumers at the pump.

He asserted that gasoline prices should be lower, in line with the 30% drop in the price of oil since peaking in June. "In fact, if retailers and refiners were earning the average profit they've made over the last 17 years, Americans would be paying at least 60 cents less per gallon for every gallon they buy," Biden said.

"You should not be using your profits to buy back stock or for dividends. Not now. Not while a war is raging," Biden said in a direct message to US energy companies. "You should be using these record-breaking profits to increase production and refining."

The Biden administration has lauded the SPR releases as a bridge to shore up global oil supplies that gave producers at home and abroad time to boost production in the face of sudden supply and trade flow changes caused by Russian President Vladimir Putin's actions. The latest announcement extends that bridge into December.

But critics have argued that draining the SPR is not the answer and only worsens supply risks for the US.

"Flipping the switch and unleashing American energy production is the best way to bring down prices at the pump, keep us secure, and deliver the affordability and reliability that people need," House Energy and Commerce Committee Republican Leader Cathy McMorris Rodgers of Washington said in a statement Oct. 19. "Instead of using the SPR for political bailout and empowering America's adversaries, President Biden should end his war on American energy and join Republican efforts to reclaim our energy dominance."

Policy shift

Industry groups offered a similar sentiment, looking for a shift in policy to long-term solutions that address the fundamental economic and security challenges facing the oil industry. Domestic producers remain leery of a proposal floated to restrict US petroleum refined product exports, an option the administration has said it is keeping on the table as a possible tool to help ensure stable domestic fuel supplies.

"The SPR was established to reduce the impacts of short-term market disruptions, not serve as a long-term solution or tool to manipulate energy markets," American Exploration and Production Council CEO Anne Bradbury said. "What the American people need is a collaborative approach from this administration that is focused on supporting domestic production of oil and natural gas."

The Biden administration has countered that the SPR remains an important tool, able to play a moderating, stabilizing role in the global oil market. Senior administration officials assured that at around 400 million barrels the reserve remained an abundant source of flexible supplies to address supply disruptions triggered by hurricanes, geopolitical conflicts or other factors.

DOE notices of SPR sales are made about a month and a half ahead of delivery, "so about a month from now is when we would need to make a decision if we're doing anything in January," a senior Biden administration official told reporters on a call Oct. 18.

"We'll continue to look at the supply challenges, we'll look at the market and we'll make responsible decisions going forward," the official said. "That applies not only to putting more oil into the market if that's what's necessary, but then we hope to be able to ... buy back into the SPR when prices are low. We thought it incredibly useful to put the market signals out there now to incent and encourage our domestic production to continue to go up and go up as quickly as it can in the near term."