Selling oil reserves, what price does the US have to pay?

The administration of President Joe Biden is selling a record amount of spare oil from the national stockpile to rein in the fuel price spike in the US as quickly as possible, but the plan could backfire if the stockpile then not replenished back quickly.

President Joe Biden announced on March 31 that the United States will sell 180 million barrels of crude oil from the Strategic Petroleum Reserve (SPR), at a rate of 1 million barrels per day starting in May. This is a major release. The most since the oil reserves were established in the 1970s. Member states of the International Energy Agency (IEA) are also releasing an additional 60 million barrels of oil to cool down global oil prices.

The decision to sell oil, rather than borrow oil, from the SPR is a trade-off: oil will be released to the market more quickly to lower prices, but it may take longer for them to replenish their stockpiles. current levels, thereby increasing long-term risks. Some analysts warn this could make oil prices more volatile.

Meanwhile, borrowing oil from the US SPR ensures that oil reserves will be fully replenished in a certain period of time, but it can take months for the parties to complete the procedure due to the fact that the oil reserves are fully replenished. The government must arrange the list of buyers and negotiate the contract.

“When we want to quickly increase the global oil supply, especially with the record high volumes we have announced, it is far more efficient to sell than to find a way to arrange contracts between different oil companies. company,” a Biden administration official told Reuters.

After selling 180 million barrels of oil, the US strategic stockpile still has a much higher amount of oil than required by the IEA. Photo: Reuters.

The sale of oil from the SPR comes with an ambiguous timeline in the return of oil to the stockpile. Emergency oil stockpiles are at their lowest level since 2002, and if oil prices rise over time, stocks could fall even lower. When oil has to be replenished when prices go up, taxpayers will have to pay more to buy oil.

The Biden administration took action after Russia launched a military campaign in Ukraine, and the sanctions and boycotts that followed drove retail gasoline prices to record highs, a weakness for Democrats. in the parliamentary elections in November.

Russia supplies about 10 percent of the global oil supply, and Western sanctions could cost the world market about 3 million barrels of oil a day, according to the IEA.

A White House document says the government will buy oil back to the SPR in the coming years.

“Selling oil from the SPR will only increase volatility in the price of this fuel because it reduces the backup buffer,” said Ilia Bouchouev, director at Pentathlon Investments and adjunct professor at New York University.

SPR currently has 564.6 million barrels of oil, equivalent to one month’s US demand for oil and liquid fuels. After the sale of 180 million barrels, the remaining stockpiles are still much higher than the IEA’s requirement to supply the equivalent of 90 US crude imports, currently about 3 million bpd.

Not to mention, oil and gas businesses will also begin to return about 32 million barrels of oil in the coming months after being approved by Washington for a loan from SPR in November 2021.

According to Benjamin Salisbury, energy policy analyst at Height Capital Markets, a record sale of oil from the SPR could make the oil market volatile in the long term. “The real risk lies in selling oil from stockpiles, including the SPR, which will reduce our ability to respond to future supply disruptions,” he said.

Gasoline prices in the US skyrocketed after Brent crude hit a 14-year high on March 7 at more than $138 a barrel amid concerns about the consequences of sanctions on Russia. Brent oil price “cooled down” to about 101 USD/barrel at the end of last week after the US announced plans to sell SPR oil.

Despite high oil prices, some shale oil producers are reluctant to increase output, and the OPEC+ group, including Russia, will only gradually increase supply as economies recover from the Covid-19 pandemic. .

Goldman Sachs said the sale of SPR oil could derail plans to increase production by about 1.1 million barrels of US shale oil companies this year. However, Mr. Salisbury said borrowing SPR oil is also not a great option because it is possible that the US will have to return a large amount of oil to its stockpile before global supply has time to “cool down”. .

“In light of the risk of a Russian-Ukrainian conflict and long-term sanctions, we cannot know for sure whether to set a certain date to get oil from the market to repay the SPR in 6 or 18 years. beneficial month or not,” he said.

According to Thanh Long