The SPR is Nearly 50% "Refilled"

You read that right. Let me explain.

Mandated Sales Rescinded

On December 29, 2022, the Consolidated Appropriations Act of 2023 was passed. The Act included language permanently rescinding $12.5 billion of the roughly $17 billion received from the Biden Administration’s 180 million Strategic Petroleum Reserve (SPR) emergency release by the Department of Energy (DOE). This resulted in the DOE being left with just $4.5 billion available for refilling the SPR - enough for roughly 55 million barrels at an $80 per barrel repurchase price.

In essence, the 2022 Emergency Release simply fast forwarded future mandated sales.

In October 2023, the U.S. Department of Energy (DOE) began issuing requests for proposals (RFPs) using its new authority for firm fixed-price contracts. After an initial period of choppiness in RFP execution, the DOE has hit its stride in recent months, consistently purchasing approximately 3 million barrels per month.

Together with the initial funds of approximately $4.5 billion and the executed barrels and purchase cost data, we then estimated the DOE continues on its current pace of 3 million barrels per month, with an assumed $78.50 per barrel purchase price.

As shown below, 36% of DOE funds are depleted through the May 2024 contracted repurchases and 47% of funds have been used through active RFPs into August. We assume $78.50 per barrel purchase price for all unexecuted barrels versus $75.82 per barrel through the May 2024 RFP.

21.6 million barrels have been purchased or are under contract, which will increase to 27.8 million barrels if the two outstanding RFPs are contracted.

On its current monthly pace the DOE will purchase 58 million barrels by June 2025. By 2024 election time, the “refill” will be two-thirds complete. 

Using this forecast together with an assumed remaining 25 million exchange barrels that need to be replaced, we expect the currently Congressionally authorized SPR refill to end at 431 million barrels of oil for one reason - the DOE will be out of money.

What Next?

The SPR has been and will remain a political shiny object. We’ve argued in the past that market dynamics have changed, allowing at least reasoned arguments for a smaller SPR. But does that work politically?

The math of what the White House and Congress did - swapping future mandatory sales for recent emergency sales - is too complex for most, but the messaging for Biden becomes easier by being able to posture the “refill” as near complete and waiting on Congress from there. But the SPR is still low relative to recent years and the ‘wartime’ usage urban myth is prevalent, giving Trump inroads on SPR political points, despite his calling for half the stockpile to be sold off in his first budget.

Consolidated Appropriations Act, 2023 SPR Text

Sec. 1301.

(a) Of the unobligated balances from amounts deposited in the SPR Petroleum Account pursuant to section 167(b)(3) of the Energy Policy and Conservation Act (42 U.S.C. 6247(b)(3)), $10,395,000,000 is hereby permanently rescinded not later than September 30, 2023.

(b) Section 403(a) of the Bipartisan Budget Act of 2015 (Public Law 114-74) is <<NOTE: 42 USC 6241 note.>> amended by adding ``and'' after the semicolon in paragraph (5), striking the semicolon in paragraph (6) and inserting a period, and striking paragraphs (7) and (8).

(c) Section 32204(a)(1) of the FAST Act (Public Law 114-94) is amended <<NOTE: 42 USC 6241 note.>> by adding ``and'' after the semicolon in subparagraph (A), striking the semicolon in subparagraph (B) and inserting a period, and striking subparagraphs (C) and (D).

(d) Section 30204(a)(1) of the Bipartisan Budget Act of 2018 (Public Law 115-123) is <<NOTE: 42 USC 6241 note.>> amended by striking the word ``Reserve'' and everything that follows and adding the following: ``Reserve 30,000,000 barrels of crude oil during the period of fiscal years 2022 through 2027.''.

SPR Petroleum Account

For the acquisition, transportation, and injection of petroleum products, and for other necessary expenses pursuant to the Energy Policy and Conservation Act of 1975, as amended (42 U.S.C. 6201 et seq.), sections 403 and 404 of the Bipartisan Budget Act of 2015 (42 U.S.C. 6241, 6239 note), section 32204 of the Fixing America's Surface Transportation Act (42 U.S.C. 6241 note), and section 30204 of the Bipartisan Budget Act of 2018 (42 U.S.C. 6241 note), $100,000, to remain available until expended: Provided, That of the unobligated balances from amounts deposited under this heading pursuant to section 167(b)(3) of the Energy Policy and Conservation Act (42 U.S.C. 6247(b)(3)), $2,052,000,000 is hereby permanently rescinded not later than September 30, 2023.

We'll do the strike throughs for you. All bolded section were struck removing 140 million barrels of mandated sales between fiscal years 2024-2027:

SEC. 403. STRATEGIC PETROLEUM RESERVE DRAWDOWN AND SALE. (a) DRAWDOWN AND SALE.—Notwithstanding section 161 of the Energy Policy and Conservation Act (42 U.S.C. 6241), except as provided in subsection (b), the Secretary of Energy shall draw down and sell— (1) 5,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2018; (2) 5,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2019; (3) 5,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2020; (4) 5,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2021; (5) 8,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2022; (6) 10,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2023; (7) 10,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2024; and (8) 10,000,000 barrels of crude oil from the Strategic Petroleum Reserve during fiscal year 2025.

SEC. 32204. <<NOTE: 42 USC 6241 note.>> STRATEGIC PETROLEUM RESERVE DRAWDOWN AND SALE.

(a) Drawdown and Sale.– (1) In general.--Notwithstanding section 161 of the Energy Policy and Conservation Act (42 U.S.C. 6241), except as provided in subsections (b) and (c), the Secretary of Energy shall drawdown and sell from the Strategic Petroleum Reserve– (A) the quantity of barrels of crude oil that the Secretary of Energy determines to be appropriate to maximize the financial return to United States taxpayers for each of fiscal years 2016 and 2017; (B) 16,000,000 barrels of crude oil during fiscal year 2023; (C) 25,000,000 barrels of crude oil during fiscal year 2024; and (D) 25,000,000 barrels of crude oil during fiscal year 2025.

SEC. 30204. STRATEGIC PETROLEUM RESERVE DRAWDOWN. (a) DRAWDOWN AND SALE.— (1) IN GENERAL.—Notwithstanding section 161 of the Energy Policy and Conservation Act (42 U.S.C. 6241), except as provided in subsection (b), the Secretary of Energy shall draw down and sell from the Strategic Petroleum Reserve— (A) 30,000,000 barrels of crude oil during the period of fiscal years 2022 through 2025; (B) 35,000,000 barrels of crude oil during fiscal year 2026; and (C) 35,000,000 barrels of crude oil during fiscal year 2027.

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