The U.S. Department of Energy will offer another 40 million barrels of crude from the Strategic Petroleum Reserve as gasoline and diesel prices remain elevated nearly seven months into the Iran war.
The barrels will be offered through an exchange, marking the final tranche of the 172 million barrels the United States pledged to a coordinated emergency release organized by the International Energy Agency.
The SPR ended August with 286.6 million barrels after another 3.1 million barrels left the reserve during the week ending Aug. 28. That left the reserve more than 445 million barrels below maximum capacity.
Commercial inventories were hardly flush. By Sept. 1, commercial crude stocks had fallen by more than 48 million barrels over the previous 20 weeks, even as emergency barrels continued moving out of the SPR.
Federal law restricts non-emergency drawdowns once SPR inventories fall below 252.4 million barrels. A 1981 Government Accountability Office report advised against releases below 250 million barrels except during a “very severe emergency.”
The reserve is expected to fall to its lowest level since 1982 once the latest release is completed.
Fuel prices remain the immediate problem. U.S. gasoline is still above $4 per gallon, while diesel has climbed above $6 per gallon amid tight middle-distillate supplies and disruptions tied to the Iran war.
At the start of September, distillate inventories were already 14% below the five-year average, while gasoline inventories were 6% below normal seasonal levels.
Energy Secretary Chris Wright also pressed European countries to make good on their own emergency-stock commitments, saying several IEA members had released only a fraction of what they pledged.
The 40 million barrels are not an outright sale. Companies receiving crude through the exchange must return oil later with additional barrels as interest. DOE has said the exchange program will ultimately return roughly 200 million barrels to the reserve.
Bids are due Oct. 6.
The exchange shifts crude into the near-term market, with participating companies obligated to return larger volumes later.
By Julianne Geiger for Oilprice.com
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