President Joe Biden's administration is offering to purchase up to 3mn bl of sour crude at a fixed price for delivery in February, as it begins to refill the US Strategic Petroleum Reserve (SPR).
The administration is preparing to buy large volumes of US-produced crude over the coming years to replace the 180mn bl of crude that Biden sold from the SPR this year through emergency drawdowns made in response to the war in Ukraine. The administration expects its initial crude purchase for the SPR should result in a profit for taxpayers.
"This repurchase is an opportunity to secure a good deal for American taxpayers by repurchasing oil at a lower price than the $96/bl average price it was sold for, as well as to strengthen energy security," the US Energy Department said.
WTI crude futures for delivery in February settled at $76.15/bl on Thursday, down from more than $100/bl in June. The Energy Department is accepting fixed price bids through 28 December for up to 3mn bl of crude for delivery to the SPR's Big Hill storage site in Texas. Contracts will be awarded no later than 13 January.
The purchase marks the first time the US is offering to buy crude for the SPR at a fixed price, an approach the administration says will give producers "assurances to make investments today." The US had previously purchased and sold crude for the SPR by opening bids on contracts that would be pegged to a benchmark price.
The White House said in October it intended to offer fixed-price SPR repurchases to increase crude demand when WTI prices were at or below a targeted range of $67-72/bl, with initial deliveries scheduled for 2024 and 2025. The administration said it was prepared to buy additional crude when prices for current delivery were in the $67-72/bl range.
Biden has said his 180mn bl drawdown from the SPR was a "wartime bridge" that eased supply disruptions and lowered fuel prices. US consumers paid an average of $3.24/USG for regular grade gasoline in the week ending on 12 December, the lowest price since January.
The administration is separately asking for authority to defer or cancel requirements from the US Congress to sell 147mn bl of crude from the SPR during fiscal years 2024-27. The administration says it would not make sense to buy and sell crude from the SPR at the same time.
