US preparing to halt 140mn bl of SPR crude sales

A year-end bipartisan spending bill would cancel existing congressional mandates to sell 140mn bl of crude from the US Strategic Petroleum Reserve (SPR) over the next five years.

The $1.7 trillion omnibus spending bill, released overnight and set for a vote this week, would cancel most congressionally mandated crude sales through fiscal year 2027. The change, if enacted, would align with President Joe Biden's plan to begin refilling the SPR next year, replacing some of the 180mn bl of crude Biden sold this year through emergency sales as a "wartime bridge" in response to Russia's war in Ukraine.

The legislative changes in the spending bill would effectively redirect nearly $10.4bn generated from this year's emergency sales to offset the estimated future revenue from the 140mn of crude sales that would be canceled. It would also avoid an outcome that Biden administration officials said would make "no sense," of refilling the SPR and selling its crude at the same time to comply with past congressional mandates.

The US Congress in prior years ordered the sale of 147mn bl of crude from the SPR in fiscal years 2024-27 to raise revenue for debt reduction, infrastructure and other priorities. The omnibus bill would cancel all those sales, with the exception of 7mn bl that would be sold in fiscal years 2026-27.

The White House has cast Biden's emergency drawdown of 180mn bl of crude from the SPR as a good deal for taxpayers, by bringing down fuel prices this year and selling SPR crude at an average price of $96/bl. The omnibus spending bill shows the crude sales being canceled only if needed to raise $74.25/bl to comply with budgetary rules, indicating a paper profit of $22/bl from the emergency sales.

The bill would not cancel another congressionally mandated sale of 26mn bl of SPR crude that is required to occur by the end of this fiscal year on 30 September. The measure would also keep intact previously enacted sales of 92.6mn bl of SPR crude scheduled for fiscal years 2028-31.

The Biden administration last week started the process to partially refill the SPR by soliciting bids for the fixed-price purchase of 3mn bl of sour crude, for delivery in February. The administration has said it may buy up to 60mn bl of crude with fixed price contracts at a targeted price of $67-72/bl, which it says will give US producers more certainty now to invest in domestic production.

Congress needs to pass the omnibus spending bill by Friday to prevent a partial US government shutdown. US Senate majority leader Chuck Schumer (D-New York) said he wanted to act "much sooner than that" so lawmakers can avoid traveling during a winter storm set to arrive later in the week.

By Chris Knight