The US Strategic Petroleum Reserve has taken a beating during the Iran war, but Energy Secretary Chris Wright says the government’s emergency oil stash is headed for a surprisingly lucrative refill.
Companies that borrowed crude from the SPR during the conflict will return those barrels with premiums attached, leaving the reserve about 40 million barrels larger than it would have been otherwise once the war ends, Wright said Friday.
For an oil market accustomed to hearing about SPR drawdowns, emergency releases, and politically motivated sales, this is the rare case where Washington expects to get back more barrels than it handed out.
“We’re not selling any barrels of oil,” Wright said on Fox Business. “We’re flowing oil to the marketplace in the short term when it needs it, and we’re trading those barrels.”
The Department of Energy has loaned roughly 133 million barrels from the reserve since the Middle East crisis erupted. Under the agreements, borrowers will return the crude plus premiums of up to 24%.
The SPR stood at 357.1 million barrels for the week ending May 29, according to weekly data published by the Energy Information Administration. That’s down from roughly 415 million barrels at the beginning of March, before emergency releases accelerated as Middle East supply disruptions intensified.
Wright isn’t worried.
His argument is that the SPR is doing exactly what it was built to do: move barrels when the market needs them and replenish later.
The more interesting question is whether “later” arrives before inventories become uncomfortably tight.
Commercial crude inventories remain relatively healthy at about 441 million barrels, but they have been trending lower with a quickness as global stockpiles continue to shrink. Exxon and Chevron executives have spent the past two weeks warning that inventories are approaching levels where prices can move sharply higher.
For now, Washington is betting that lending out barrels today and collecting 1.25 barrels tomorrow is a trade worth making.
It’s not often the SPR earns interest.
By Julianne Geiger for Oilprice.com
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