It could take years to refill oil reserve, says US Energy Secretary

It could take years for the United States to refill the Strategic Petroleum Reserve, the energy secretary told lawmakers, after sales directed by President Joe Biden last year pushed the stockpile to its lowest level since 1983.

"This year, it will be difficult for us to take advantage of this low price," Energy Secretary Jennifer Granholm told US representatives in a congressional hearing. "But we will continue to look for that low price into the future because we intend to be able to save the taxpayer dollars."

Biden administration officials have said they want to refill the reserve, after last year's historic sale of 180 million barrels, when the oil price consistently is around US$70 a barrel. Oil from that sale sold at about US$94 per barrel.

The price for benchmark West Texas Intermediate crude futures has fallen to around US$70 per barrel this week on worries about the economy amid crises at several banks. Granholm said at the hearing the administration wants to buy oil back at under US$72 a barrel.

The Department of Energy said last month it was implementing a three-part strategy to refill the reserve in the long term, including repurchases with about US$4.5 billion in revenues from previous sales, returns of more than 25 million barrels of oil from previous exchanges, and working with Congress to avoid "unnecessary sales unrelated to supply disruptions."

The department succeeded last year in persuading Congress to cancel sales it had mandated of about 140 million barrels that had been set to take place from fiscal year 2024 to fiscal year 2027.

Still, the DOE is moving forward with a sale of 26 million barrels from the SPR that was mandated by Congress in earlier years to help fund the federal budget. The oil will be delivered from April 01 to June 20.

Granholm said that sale and maintenance at two of the reserve's four sites will make it difficult to buy back oil this year.

Bryan Mound in Texas and Bayou Choctaw in Louisiana were both undergoing planned life extension work, the department said later.

The SPR currently holds about 372 million barrels, the lowest since 1983, in hollowed-out salt caverns along the Gulf Coast. Steel pumps and other equipment are constantly exposed to moist salty air.

Biden administration considering largest ever release from emergency oil reserve

The sanctions on Russia and its demand to get paid in ruble have started impacting United States and members of European Union. The latest move to release oil from strategic reserves is the third attempt to reign in prices as OPEC Plus sticks to its plan on increasing output.

The Biden administration is considering releasing up to 180 million barrels of oil over several months from the Strategic Petroleum Reserve (SPR). The move would mark the third time the United States has tapped its strategic reserves in the past six months, and would be the largest release in the near 50-year history of the strategic reserves.

It is evident that the releases have not managed to lower prices as world demand has nearly reached pre-pandemic levels while supply has tightened globally.

Oil prices have surged since Russia invaded Ukraine in late February and the United States and allies responded with hefty sanctions on Russia, the second-largest exporter of crude worldwide.

Brent crude, the world benchmark, rose to about US$139/barrel earlier this month, highest since 2008, and was near US$110/barrel in Asian trading on Thursday.

Russia is one of the world’s top producers of oil, contributing about 10% to the global market (Russia exports 4 to 5 million bpd). But sanctions and buyer reluctance to buy Russian oil could remove about 3 million barrels per day (bpd) of Russian oil from the market starting in April, the International Energy Agency (IEA) has said.

The news comes just before the Organization of the Petroleum Exporting Countries and its allies, an oil producer group known as OPEC Plus that includes Saudi Arabia and Russia, meets to discuss reducing supply curbs.

The United States, Britain and others have previously urged OPEC Plus to quickly boost output. However, the group is not expected to deviate from its plan to keep boosting output gradually when it meets Thursday.

The United States currently holds 568.3 million barrels as SPR, its lowest since May 2002, according to the US Energy Department.

The United States is considered a net petroleum exporter by the IEA. But that status could change to net importer this year and then return to exporter again as output has been slow to recover from the COVID-19 pandemic.

It was not immediately clear whether a 180 million barrel draw would consist of exchanges from the reserve that would have to be replaced by oil companies at a later date, outright sales, or a combination of the two.

US Energy Secretary Jennifer Granholm said last week while on a trip to Europe that the United States and its allies in the IEA were discussing a further coordinated release from storage.

The IEA has called an emergency meeting for Friday to discuss oil supply, a spokesperson for Australian Energy Minister Angus Taylor said.

IEA member states agreed earlier in March to release over 60 million barrels of oil reserves, with 30 million barrels coming from the US-SPR.

US crude futures fell by US$4.70 to US$103.12/barrel and Brent futures declined by US$4.45, or 3.9% to US$109 a barrel on news of the potential release.

The White House said Biden will deliver remarks at 1730 GMT on his administration’s actions to reduce the impact of Putin’s price hike on energy prices and lower gas prices at the pump for American families. It did not give additional details.

High gasoline prices are a political liability for Biden and his Democratic Party as they seek to retain control of Congress in November elections.

The Biden administration is considering temporarily removing restrictions on summer sales of higher-ethanol gasoline blends as a way to lower fuel costs for US consumers, three sources familiar with the matter told Reuters.

Adding more ethanol to gasoline blends could potentially reduce prices at US gas pumps because ethanol, which is made from corn, is currently cheaper than straight gasoline.

 

 

US administration urges domestic oil producers to raise output

The US administration is offering its strongest public support to domestic oil producers for boosting output by drilling on existing leases. It is also ruling out the possibility of reinstating a decades-old ban on crude exports.

Lately, US Energy Secretary, Jennifer Granholm told oil executives the administration was not "standing in the way" of oil and gas production and supported increased output. She noted that the administration has approved drilling permits on federal land at a faster pace than the prior administration. It is also pursuing other policies that could bring down retail gasoline prices that went close to seven-year high.

"Consumers as you know are hurting at the pump," Granholm said at a meeting of the National Petroleum Council, a group of high-level oil executives that offer advice to the US Energy Secretary. "I hope you will hear me say that please, take advantage of the leases that you have, hire workers, get your rig count up."

The change in tone comes amid growing frustration from US oil executives, who have bristled at what they see as a lack of support from the administration. Biden in one of his first acts in office blocked the 830,000 b/d Keystone XL pipeline and spent this summer unsuccessfully asking OPEX Plus to accelerate plans to boost output. Chief Executive of US independent producer, Pioneer Natural Resources, Scott Sheffield last week said he has yet to meet another oil executive who has received a call from the administration asking them to increase drilling.

But the administration has become increasingly vocal in saying it supports domestic production, as voter frustration over fuel prices becomes a growing threat to Democratic passage of a US$1.85 trillion budget package. US senator Joe Manchin has cited high inflation rates as a reason to slow work on the budget bill, which includes hundreds of billions of dollars in support for clean energy.

Granholm said it would make "little sense" for the administration to stand in the way of oil and gas production as the US recovers from the effects of COVID-19, echoing remarks that US Deputy Energy Secretary, David Turk made to the industry officials last week. She also more definitively ruled out the possibility that the administration would reinstate a ban on crude exports, something the White House said last week it was not considering. Granholm said she had heard from industry officials last week that it was important to take "off the table" the uncertainty of a potential crude export ban.

"I have heard you loud and clear, and so has the White House, and we wanted to put that rumor to rest," Granholm said.

US crude production reached 11.7 million barrels per day (bpd) during the week ended on December 03, 2021, the highest output levels since May 2020, according to the US Energy Information Administration. However, the domestic production is still down from record-high levels of 13 million bpd in the months before the pandemic heavily reduced demand. US oil executives say that a demand by shareholders to prioritize profits over output growth have been the primary driver of their investment decisions, rather than policies set by the administration.

The administration has made other attempts to lower gasoline prices for consumers. Biden has asked the US Federal Trade Commission to look at whether "illegal conduct" is contributing to higher gasoline prices. Biden also accelerated the sale of 18 million barrel crude oil from the US Strategic Petroleum Reserve and last week agreed to loan out 4.8 million barrel crude from the strategic reserve to ExxonMobil.