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#Strategic #Petroleum #Reserve #Oil Releases: October 2021 Through October 2022.

The Biden Administration announced plans to release up to 260 million barrels of crude oil from the U.S. Strategic Petroleum Reserve (#SPR) from October 2021 through October 2022. Oil stocks in the SPR were approximately 618 million barrels at the end of September 2021. Releases planned during this period include exercise of three SPR authorities: (1) mandatory sales, (2) exchanges, and (3) emergency sales (see Figure 1). Each release type differs in terms of congressional authority, use of funds, and replacing released barrels.

Background.
In the wake of a politically-motivated, multi-country oil #embargo that contributed to high #fuel #prices, perceived #shortages of #energy #commodities, and U.S. energy security concerns, Congress created the SPR (42 U.S.C. §6231 et seq.) in 1975. Congressional intent for the SPR includes two statutory energy #policy objectives: (1) reduce the impact of petroleum supply #disruptions, and (2) carry out U.S. obligations under the international energy program (IEP)—a multilateral agreement subject to international law. The International Energy Agency (IEA) administers the IEP. Furthermore, congressional findings state that the SPR is both a national security and an energy security asset.

Generally, statutes authorize unlimited SPR drawdowns following either a presidential finding of a severe energy supply interruption or an IEP obligation. Statutes also authorize limited drawdowns—no more than 30 million barrels during a 60-day period and subject to minimum storage levels (252.4 million barrels as of April 2022)—for the purpose of either preventing or reducing the impact of domestic #energy #supply interruptions. Prior to 2022, there had been three emergency SPR releases: (1) Operation Desert Storm in 1991, (2) Hurricane Katrina in 2005, and (3) Libya oil supply disruptions in 2011. These emergency SPR drawdowns resulted in sales ranging from 11 million barrels to 30.6 million barrels.

From time to time, Congress mandates SPR crude oil sales to pay for other legislative priorities. Since 2015, Congress has enacted eight laws mandating the sale of up to 358.6 million barrels between FY2017 and FY2031. To date, 93 million barrels have been sold. Additionally, Congress required approximately $1.4 billion of SPR oil sales between FY2017 through FY2022, resulting in the sale of nearly 22 million barrels, to pay for an SPR modernization program.

Mandatory Sales.
During the time period covered in this Insight, two mandatory sales have been completed. Mandatory sale 1 consisted of 20 million barrels: 8 million in FY2022 required by P.L. 114-74 and 12 million, of 30 million between FY2022 and FY2025, required by P.L. 115-123. Mandatory sale 2 consisted of the remaining 18 million barrels required by P.L. 115-123 before the end of FY2025. Mandatory sales are price competitive and follow SPR standard sales provisions. Sale proceeds are deposited into the U.S. Treasury general fund. There is no statutory requirement to replace mandatory sales.

Exchanges.
Exchanges are conducted under SPR oil acquisition authorities. Frequently, exchanges are structured like short-term loans. Crude oil is provided to an entity (e.g., oil refiner), who agrees to return an equivalent oil volume plus additional “premium” barrels to the SPR at a future date. Premium barrels are necessary in order to acquire oil under the transaction. The Biden Administration’s 32-million-barrel competitive exchange requires return of exchange oil, plus premium barrels, by the end of FY2024.

Emergency Sales.
Responding to oil market uncertainty and price volatility related to Russia’s military operations in Ukraine, President Biden announced two emergency SPR crude oil sales in March and April of 2022. The first emergency sale was part of a multi-country release, coordinated by the IEA, that resulted in approximately 30 million barrels being sold from the SPR. Following President Biden’s finding of a severe energy supply interruption, a second emergency sale of up to 160 million barrels is one element of the Administration’s plan to address high consumer fuel prices. Should all barrels be sold, this would be the largest emergency SPR release. Emergency sales are also price competitive and follow standard sales procedures. Sale proceeds are returned to the SPR Petroleum Account, which can be used to replenish the reserve.

Policy Considerations...