US weighing largest ever draw from emergency oil reserve, sources say

The Biden administration is considering releasing up to 180 million barrels of oil over several months from the Strategic Petroleum Reserve (SPR), four US sources said on Wednesday, as the White House tries to lower fuel prices.

The International Energy Agency (IEA) member countries are set to meet on Friday at 1200 GMT to decide on a collective oil release, a spokesperson for New Zealand energy minister said in an email on Thursday.

“The amount of the potential collective release has not been decided,” the spokesperson for minister Megan Woods added. “That meeting will set a total volume, and per country allocations will follow,” she said. Read full story

It is unclear if the US SPR draw would be part of a wider global coordinated release.

The IEA did not respond to a request for comment outside office hours. President Joe Biden will deliver remarks on Thursday on his administration’s actions, the White House said.

The latest amount of US oil release being considered, which is equivalent to about two days of global demand, would mark the third time the US has tapped its strategic reserves in the past six months, and would be the largest release in the near 50-year history of the SPR.

Global oil prices plunged more than US$5 a barrel on the news.

Oil prices have surged since Russia invaded Ukraine in late February and the US and allies responded with hefty sanctions on Russia, the second-largest exporter of crude.

Brent crude, the world benchmark, soared to about US$139 earlier this month, highest since 2008, but slipped under US$108 a barrel in Asian trading on Thursday.

Russia is one of the top producers of oil, contributing about 10% to the global market. But sanctions and buyer reluctance to purchase Russian oil could remove about three million barrels per day (bpd) of Russian oil from the market starting in April, the IEA has said.

Russia exports four to five million bpd.

The news comes just before the Organization of the Petroleum Exporting Countries and its allies, an oil producer group known as OPEC+ that includes Saudi Arabia and Russia, meets to discuss reducing supply curbs. The US, Britain and others have previously urged Opec+ to quickly boost output.

However, Opec+ is not expected to veer from its plan to keep boosting output gradually when it meets Thursday.

The US SPR currently holds 568.3 million barrels, its lowest since May 2002, according to the US Energy Department.

The US is considered a net petroleum exporter by the IEA. But that status could change to net importer this year and then return to exporter again as output has been slow to recover from the Covid-19 pandemic.

It was not immediately clear whether a 180 million barrel draw would consist of exchanges from the reserve that would have to be replaced by oil companies at a later date, outright sales, or a combination of the two.

The White House did not comment on the plan to release oil.

“The immediate need is to fill the gap in the real economy, and releasing barrels from the SPR will alleviate that problem although it is effectively transferring the shortage from one pocket to the other,” said Howie Lee, an economist at Singapore’s OCBC bank.

Political liability

The White House said Biden will deliver remarks at 1.30pm ET (1730 GMT) on “his administration’s actions to reduce the impact of Putin’s price hike on energy prices and lower gas prices at the pump for American families.”

It did not give additional details.

High gasoline prices are a political liability for Biden and his Democratic party as they seek to retain control of Congress in November elections.

Given that the US is taking a “muscular stance toward Moscow, promising more sanctions if Russia continues to wage war in Ukraine, we believe the SPR release is being used as a tool to blunt the impact of these foreign policy decisions for US consumers,” RBC Capital said in a note to clients.

US Energy Secretary Jennifer Granholm said last week that the US and its allies in the IEA were discussing a further coordinated release from storage.

IEA member states agreed earlier in March to release over 60 million barrels of oil reserves, with 30 million barrels coming from the US SPR.

The Biden administration is also considering temporarily removing curbs on summer sales of higher-ethanol gasoline blends as a way to lower fuel costs for US consumers, three sources familiar with the matter told Reuters.

Adding more ethanol to gasoline blends could potentially reduce prices at US gas pumps because ethanol, which is made from corn, is currently cheaper than straight gasoline.