The Strategic Petroleum Reserve (SPR) fell to its lowest level since 1983, as oil and gas prices rose again last week.
The Biden administration has tapped over 240 million barrels from the SPR this year to lower domestic gas prices, which have been rising since the president took office.
President Joe Biden first announced his plan to release oil from the national reserve on an emergency basis on Nov. 23, 2021, as part of a “major effort to moderate the price of oil” and lower prices at the average “corner gas station.”
The SPR was established when Congress passed the Energy Policy and Conservation Act after the 1973 oil embargo, for emergency shortages, acts of terrorism, and natural disasters.
Following Russia’s invasion of Ukraine, Biden ordered the release in March of the first 30 million barrels out of the 180 million initially intended to be tapped from the SPR in 2022.
Republicans and energy analysts have been highly critical of the plan, arguing that it does little to lower gas prices and makes the United States more vulnerable to major supply disruptions in the future.
U.S. gas prices soared over $5 per gallon in June, reaching an all-time high, but later fell below $4 by the end of summer.
Right before the midterms, Biden controversially ordered the DOE to sell an additional 15 million barrels from the SPR on October 19, in addition to the oil already released, and called for additional sales throughout the winter.
The emergency oil stockpile, which is managed by the Department of Energy (DOE), tumbled to 375.1 million barrels as of Dec. 23, according to the Energy Information Administration.
This is the first time that the reserve has fallen below 378 million barrels since Dec. 30, 1983, when it reached 378.3 million barrels.
In the meantime, average national gas prices rose to $3.159 per gallon on Dec. 29, for the third consecutive day, according to the American Automobile Association’s gas price index.
However, the brief rally earlier this week and other associated factors may deter producers from selling oil contracts to the U.S. government at its desired price of between $67 and $72 per barrel, to refill the reserve.
West Texas Intermediate (WTI), the U.S. oil benchmark, jumped to nearly $80 per barrel last week, but later fell to around $78.30 by Dec. 29, while the Brent crude index, the global oil benchmark, hit $84.33 per barrel.
The DOE’s Office of Petroleum Reserves announced on Dec. 16, that it would start repurchasing crude oil for the SPR.
Higher oil prices potentially pose a challenge to the DOE’s plan to begin soliciting bids from oil producers to refill the SPR using fixed-price contracts.
The Chicago Mercantile Exchange showed future WTI prices holding above $79 per barrel from February through July 2023.
The DOE’s program to refill the national oil stockpile by 3 million barrels a day, is set to begin in February 2023.
Two factors driving up oil markets include rising demand from China, as it emerges from its pandemic restrictions in recent weeks, and a potential reduction in oil output from Russia after it promised to retaliate against countries supporting the G-7-led price cap.
The latest price estimates may encourage producers to take their chances with the market rather than make bids for the government’s contracts.
Congressional Republicans have since denounced the move and announced that they would impose further oversight and new legislation next year, that would halt further releases from the stockpile, which is dangerously low, reported Fox Business.
The Republicans are pushing a bill that would prohibit the DOE from tapping the SPR unless there is a “severe energy supply interruption” and until the administration issues a plan to boost domestic oil and gas production.
They also warned the rapid depletion of the stockpile would allow opponents like Russia, China, and Iran to “gain geopolitical leverage” over the United States.
Sen. John Barrasso (R-WY.), the ranking member of the Senate Energy and Natural Resources Committee, and Rep. Cathy McMorris Rodgers (R-WA), the ranking member of the House Energy and Commerce Committee, warned last month that the Biden administration was endangering its future of the SPR.
The two Republican lawmakers accused Energy Secretary Jennifer Granholm of overseeing the sale of more than 245 million barrels from the national stockpile, while “gas prices remain high and supply chain shortages continue to plague our economy.”
They noted that instead of encouraging American energy producers to drill for more oil, Biden administration officials failed to “establish long-term plans for the optimal size, configuration, maintenance, and operational capabilities of the reserve,” while depleting it to its lowest level in decades.
GOP legislators noted that while the United States remains a net exporter of oil products, the SPR needs to remain stable enough to mitigate any potential supply disruptions that could affect the nation’s energy infrastructure.
Meanwhile, the Biden administration has been criticizing American oil producers throughout the year for spending too little on additional production, despite the White House’s best efforts to discourage drilling.
Major producers like Chevron and ExxonMobil have said that they were trying to increase production in the Permian Basin in response to the criticism, but others in the industry have said that any new drilling projects might expose them and their investors to risks if prices plummet.