A recent increase in crude prices has made it a "very real possibility" that the US Department of Energy (DOE) will offer an additional round of crude loans under a still ongoing 172mn bl drawdown from the US Strategic Petroleum Reserve (SPR), US energy secretary Chris Wright said.
The escalation of hostilities in the Middle East has caused front month WTI crude prices to jump to about $101/bl, which is about 25pc more than futures prices for delivery six months from now. The steep backwardation in the futures market, if it continues, has made it a "very real possibility" that DOE will resume offering oil under the existing crude loan program, Wright said.
"The market right now is saying, 'Hey, maybe we need that oil.' So quite possibly we will respond to that," Wright told reporters on Thursday.
DOE has already loaned more than 130mn bl of crude or more than 75pc of the drawdown that President Donald Trump authorized in March, and another 3mn bl is scheduled to be released over the next few weeks. But the remaining crude of the authorization — about 38.5mn bl — has yet to be obligated.
DOE got high interest in the program this spring, as traders took advantage of about a $30/bl premium in the front month crude contract over futures prices a year later. That profit was more than enough to cover a requirement to return more crude to the SPR than borrowed, which so far is putting about 1.25 bl into the SPR for each 1 bl borrowed.
But by June, when DOE offered to loan out the remaining 40mn bl out of the 172mn bl authorization, the profitability of the trade had collapsed, and only 500,000 bl was contracted.
"We had stopped selling because the prices were flat," Wright said. "The market today is pulling for it. If that remains, then it's very possible we will finish the allocation of oil we originally agreed to trade."
The ongoing drawdown has pushed crude inventories in the SPR to a 44-year low of 285mn bl. Wright has previously said he expects crude to start returning to the SPR by early next year, but the reserve will remain partially depleted even after that refill process finishes in 2029. The US Congress has only provided $171mn to buy crude to refill the SPR, and Wright said he was looking at other options to refill the SPR.
"We have a couple of other very creative ideas that I've hinted at for a while — you'll hear more about them later — where we're going to we're going to put quite a few more barrels into the SPR at no cost to the US taxpayers," Wright said at an event held by The Daily Caller.
