Biden’s Department of Energy will not be refilling the nation’s emergency reserves, the Strategic Petroleum Reserve, any time soon as the agency has rejected bids received for the February fill since the bids are above $70 a barrel. Today’s price for Texas Intermediate oil is $75.87 a barrel. Biden depleted the emergency oil reserve of 260 million barrels to keep gasoline prices down going into the mid-term election last year. Biden promised to refill the reserve starting this February. But, apparently, his energy department did not like the bids. His Department of Energy (DOE) was to refill up to 3 million barrels for delivery to the Strategic Petroleum Reserve in February, but stated “DOE will only select bids that meet the required crude specifications and that are at a price that is a good deal for taxpayers.” Never mind that the reserve was set up to be used for national emergencies, not for reducing gasoline prices during an election year–prices that his climate policies needlessly raised.
Biden’s SPR Releases
In November 2021, Biden released 50 million barrels from the petroleum reserve and on March 1, 2022, Biden announced the release of a further 30 million barrels. Then on March 31, 2022, Biden announced another 180 million barrels would be released over the remaining 9 months of the year to reduce gasoline prices—prices that he raised due to his energy policies. Over the 9 month release period of the last announcement, DOE sold 180 million barrels of oil at an average price of $96.25 a barrel, well above the recent market price of $75.87—meaning that the U.S. government should be over $3.6 billion ahead. Biden’s SPR sales were the largest since the reserve was created after the Arab oil embargo from 1973 to 1974. Because SPR oil is sold to the highest bidder, including foreign companies, China was allowed to buy almost 6 million barrels.
But the Biden administration appears to be in no rush to buy oil to refill the reserve. It believes the SPR’s remaining holdings—about 382 million barrels—leave it well-positioned to weather potential supply shocks. The SPR held about 593 million barrels of oil at the beginning of this year, down from a peak of 727 million barrels in 2009.
In March of 2020, President Trump wanted to stabilize the domestic oil industry after Covid-19 hit and global petroleum demand tanked by spending $3 billion to fill the reserve when oil sold at about $24 a barrel. Because the Democrats in Congress voted against it, billions in potential profits were lost and tens of millions of fewer barrels were at President Biden’s disposal. It will now take more oil to fill the reserve than two years ago. In March 2020, the reserve had 634 million barrels stored out of a capacity of 727 million barrels. The reserve is now at its lowest level since 1984, which is a problem since U.S. consumption is much higher today than it was in 1984. In 1984, the United States was using 20 percent less oil.
SPR’s Congressionally Mandated Sales
DOE requested Congress to pause or cancel previously scheduled SPR sales of about 140 million barrels between 2024 and 2027. The $1.7 trillion omnibus spending bill cancels most of the congressionally mandated oil sales through fiscal year 2027. The legislative changes in the spending bill would effectively redirect nearly $10.4 billion generated from this year’s emergency sales to offset the estimated future revenue from the 140 million of oil sales that would be canceled. According to the Biden Administration, it would also avoid an outcome that would make “no sense,” of refilling the SPR and selling its oil at the same time to comply with past congressional mandates, despite those sales being specifically attached to funding specific projects.
Congress in prior years ordered the sale of 147 million barrels of oil from SPR in fiscal years 2024 to 2027 to raise revenue for debt reduction, infrastructure and other priorities. The omnibus bill cancels all those sales, with the exception of 7 million barrels that would be sold in fiscal years 2026 to 2027.
The Biden Administration is casting its emergency drawdown of 180 million barrels of oil from the SPR as a good deal for taxpayers because it brought down fuel prices and SPR oil was sold at an average price of $96 per barrel, resulting in a supposed profit. The omnibus spending bill shows the oil sales being canceled only if needed to raise $74.25 per barrel to comply with budgetary rules, indicating a paper profit of $22 per barrel from the emergency sales.
The bill would not cancel another congressionally mandated sale of 26 million barrels of SPR oil that is required to be sold by the end of this fiscal year on September 30. The measure would also keep intact previously enacted sales of 92.6 million barrels of SPR oil scheduled for fiscal years 2028 to 2031.
Conclusion
The Strategic Petroleum Reserve was set up to be used for emergency purposes, but this administration has politicized it, using it to lower gasoline prices during a political season, rather than letting oil and petroleum markets work. Having depleted the reserve of 260 million barrels of oil, President Biden announced that the refill will begin this February. However, the price and crude specifications of the bids were not to his administration’s liking, thus delaying the refill process. His administration feels that the remaining barrels in the reserve are sufficient for an emergency.
Rather than using the SPR as a political tool to lower gasoline prices, President Biden should review his energy and climate policies and make changes to his lease and permit approval program for drilling oil and natural gas on federal lands. If he were to go back to President Trump’s energy program, energy prices would be much more affordable for Americans and food and other costs would also be lowered as transportation costs to produce and move the products would also be less.
*This article was adapted from content originally published by the Institute for Energy Research.