The Biden administration recently made the decision to cancel its planned purchase of 6 million barrels of oil in order to refill the Strategic Petroleum Reserve. This move comes as the nation's emergency stockpile is currently at its lowest level in 40 years, while oil prices continue to rise.
The purchase of additional oil was initially announced by the Department of Energy as part of its buyback plan, which aimed to replenish the reserve after the previous administration's 180-million-barrel sale following Russia's invasion of Ukraine. The goal was to bring stability to the stockpile and ensure it remained adequately supplied, especially during times of national emergencies.
However, the Biden administration's target oil prices for replenishing the reserve, ranging between $67 to $72 per barrel, are notably lower than the current crude oil prices in the market. Global demand for oil has been on the rise, and ongoing supply cuts by Saudi Arabia have put further pressure on prices.
As of midmorning Wednesday, international benchmark Brent crude stood at $84.55 per barrel, with U.S.-based West Texas Intermediate also hovering above $80 per barrel. These high prices have prompted the administration to reevaluate its replenishment strategy.
While the Department of Energy remains committed to its strategy, which includes direct purchases, returns of oil loaned to companies following natural disasters, and the cancellation of unnecessary planned sales, concerns have arisen regarding the nation's vulnerability and limited resources in the event of a supply emergency. The previous 180-million-barrel drawdown did provide some relief to U.S. consumers, reducing gas prices by nearly 40 cents per gallon, according to a Treasury estimate. However, it also contributed to the current historic lows of the reserve.
Looking ahead, analysts predict that oil prices will continue to increase in the coming months, as Saudi Arabia's supply cuts are expected to persist until at least September. Goldman Sachs analysts project that Brent crude prices could reach $86 per barrel by the end of 2023 and potentially rise even further to $93 per barrel by the second quarter of 2024.
In light of these circumstances, Energy Secretary Jennifer Granholm has acknowledged that the administration may face challenges in refilling the reserve during President Joe Biden's current term. Undoubtedly, finding a balance between stabilizing oil prices, ensuring national security, and maintaining a sufficient petroleum reserve remains a complex undertaking for the administration.