Biden Leaves Market And Military Unclear About Strategic Oil Reserve
John Konrad March 28, 2023

The Biden administration’s inconsistent approach to the Strategic Petroleum Reserve (SPR) has raised concerns and intensified skepticism among oil producers and tanker owners. Initially, the White House proposed refilling the SPR at specific oil prices (between $67 and $72 per barrel) aiming to strike a balance between supporting the industry and protecting consumers. However, crude oil prices have since dipped below $70 and recent statements by Energy Secretary Jennifer Granholm and Biden’s energy security adviser, Amos Hochstein, suggest a wavering commitment to this strategy.

This uncertainty coincides with the fallout from Silicon Valley Bank’s collapse, which significantly impacted oil futures. Amid this chaos, there was an opportunity for the Energy Department to refill the SPR and signal support for domestic oil producers. Still, the administration’s contradictory messaging has left the oil markets unclear about its intentions.

Glad to see the growing scrutiny of The White House leaving the SPR un-refilled, despite having sold a lot of oil and indicated plans to repurchase at lower prices. https://t.co/Phhg2R1LTr
— Joe Weisenthal (@TheStalwart) March 28, 2023

According to Denning about 75% of the 180 million barrels released from the SPR have already been “refilled” by canceling future Congress-mandated sales. However, a gap of 40 million barrels remains, which will grow to over 60 million this year as the last of the mandated sales are executed.

“Biden’s energy policy is a high-wire act balancing green objectives with the demands of energy security today,” writes Denning. “As with the recent approval of the Willow oil project in Alaska, the president will draw fire from within his own party’s ranks for anything that looks friendly to fossil fuels. Yet the underlying logic of using the SPR to modulate the market is sound green politics, too. As last year’s brush with $5 pump prices, and Biden’s response, demonstrated, he is apparently aware that letting oil supply drain ahead of demand is a good way to lose power before an energy transition can take hold.”

And then there is the strategic importance of oil reserves. In the current situation affecting the global tanker markets – tight supply accompanied by high charter rates – is being driven by the conflict in Ukraine and headlines show the difficulty countries around the world are having sourcing energy. A conflict with China would have more dramatic consequences for the markets. There would be significant but unpredictable impacts on oil markets, tanker markets, and trade flows upon which to base assumptions on tanker availability.

“In the event of a broad conflict with China in the Pacific theater, the U.S. will likely lose reliable access to the currently relied-upon sources of oil within the Pacific region,” wrote Captain Stephen M. Carmel, Senior VP at Maersk Line Limited, in a recent article on oil security. “The U.S. will then need to manage exceedingly long lines of supply to ensure oil flows to the forces in the greatly increased quantities demanded by a wartime operational tempo.”