Tap into America’s oil reserves in case of emergency. This was the idea behind the Strategic Petroleum Reserve (SPR) when the program was crafted in the 1970s under then-President Gerald Ford. However, under the current administration, it has morphed into a political weapon to facilitate victory in an election year. As a result, the SPR has been drained and cut nearly in half, potentially leaving the United States vulnerable in the event of a disaster. Rather than replenishing the rainy-day crude fund, the White House thinks slow and steady will ultimately win the race.
Oil Reserves Hit a Roadblock
In March, the Department of Energy issued a solicitation for 2.8 million barrels of crude oil for August and September deliveries to a major SPR storage facility in Louisiana. However, the Energy Department canceled the move out of the blue and will only “solicit available capacity as market conditions allow. We will continue to monitor market dynamics.” Whether the administration seeks October contracts or not remains to be seen. But it was perplexing.
Fox News’ Peter Doocy asked White House press secretary Karine Jean-Pierre during an April 3 press briefing about what happened and why the administration is not refilling the SPR fast enough. She deferred to the Department of Energy as “they would have more specifics on that for you.”
Since arriving at the Oval Office in January 2021, President Biden has drained the SPR by about 43%, tumbling from 638 million barrels to 363.6 million, according to the Energy Information Administration (EIA). The administration quickly tapped into the SPR following Russia’s invasion of Ukraine, which helped send oil and gasoline prices through the roof, often called “Putin’s price hike.” The Treasury Department estimated that the move helped reduce a gallon of gas by 80 cents.
The White House has repeatedly pledged to replenish the SPR for the past two years. So far, it has failed to follow through on these assurances. In December 2022, the administration issued a fact sheet that noted the US government would begin to purchase crude when prices were between $67 and $72 a barrel. A year later, Energy Secretary Jennifer Granholm presented a three-part plan to replenish the SPR. It is now uncertain what will happen next.
US officials have started adding to the country’s oil reserves at a snail’s pace. Indeed, these efforts have not been as fast and furious as the drawdowns. After collapsing to a four-decade low of around 346 million barrels in July 2023, Washington has since injected approximately 17 million barrels, based on the latest EIA statistics.
Daniel Turner, founder and executive director of energy advocacy group Power The Future, was blunt in his assessment of the current situation:
“It’s pure insanity to watch the Biden Administration cut American oil production and then claim they can’t refill our critical reserve because of the price. Joe Biden drained the SPR for political reasons, cut our domestic production for his climate agenda and now he’s leaving our critical reserve more vulnerable because he’s incompetent. As a result, Americans are paying more at the pump, more at the grocery store and our SPR is less full during a time of rising turmoil in the Middle East.”
But why is the administration fearful of juicing the SPR? A second wave of inflation.
Running of the Bulls
Crude oil prices have been on a tear in 2024, soaring 20% to around $85 per barrel on the New York Mercantile Exchange. Texas Tea has been one of the leading causes of the inflation revival in the first quarter of 2024. In addition to geopolitical tensions, tight global energy markets have fueled the bull run. All the president’s men and women might be concerned that if more supply is taken out of the marketplace, it would add to the rally and, as a result, exacerbate inflationary pressures.
Of course, it is all speculative talk, but market watchers have observed the trends. “Domestic crude prices are likely to remain too high for the remainder of the year for DOE to resume its refilling program,” Bob McNally, president of consulting firm Rapidan Energy Group, said in an interview with Bloomberg. JPMorgan Chase now believes Brent, the international benchmark for oil prices, could hit $100 by September. More energy analysts think a gallon of gasoline could eye $4 this summer.
What Could Have Been
Remember during the coronavirus pandemic when oil prices traded around $25 a barrel? Then-President Donald Trump proposed buying 77 million barrels to add to the SPR. Rather than take advantage of the opportunity, Democrats railroaded 45 and removed the provision from a stimulus package because they thought it was a “bailout” for the energy industry. On the one hand, it would have potentially allowed the incumbent to withdraw even more from the SPR. On the other, it might have proffered a bit more of a cushion. Either way, it is a sad state of affairs when emergency oil reserves have transformed into a political game.
