Energy Dept. Says It Will Release 40 Million More Barrels from the Strategic Petroleum Reserve

Mark Hake

On April 21, the U.S. Dept. of Energy (DOE) announced it will release an additional 40 million more barrels of oil from the Strategic Petroleum Reserve (SPR). This is on top of the 50 million it has already sold. The new release will be sold on May 24 on a bid-basis for delivery in June.

The DOE also said that it has now awarded 50 million total barrels of oil including contracts awarded to date for delivery in May and June. With the new 40 million barrels, it means the DOE will have released 90 million barrels from the SPR.

Moreover, there are likely to be further sales from the SPR. This latest 40 million release is part of President Biden's plan authorizing the release of 1 million barrels per day from the SPR for the next six months.

A White House press release on April 21 said this was part of the largest ever release of oil from the SPR. It also said that releases would occur "until the end of the year, when domestic production is expected to increase by 1 million barrels per day." However, it did not provide any reference indicating where this domestic production increase is forecast to occur.

The DOE also listed today the winners of the bidding contracts for the SPR release. The largest contract was grated to Valero Marketing and Supply Company (6.85 million barrels), followed by Motiva Enterprises LLC (4.05 million barrels), and ExxonMobil Oil Corporation (3.6 million barrels). Eight other companies were listed as contract winners, including Chevron, Marathon Petroleum, and Glencore.

Analysis of the Effects of the SPR Oil Releases

The additional releases from the SPR were billed by the White House press release as a Biden Administration response to the Putin price hikes. Goldman Sachs commodity analysts said in a note that the release would help imbalances in 2022 but "would not resolve its structural deficit."

It will be seen in the market as a release of inventories, not a persistent source of supply. That may dilute the effect it has on the price of oil as the market sees through the end of the releases which cannot last.

A Bloomberg article recently criticized the releases for the unintended consequences it could have. For example, OPEC could have a "backlash" action negating the increase in supply by lowering their output. "Today, despite soaring oil prices, OPEC+ stuck to its plan to only gradually boost oil production, and it could always drop the idea altogether."

It also might encourage crackers to simply buy from the SPR rather than increase their production. There are no incentives with the SPR release for domestic producers to increase their supply. Lastly, the SPR does nothing to prevent buyers from continuing to buy from Russia, which apparently has not abated so far. After all, this was the intent of the White House in their press release - to "respond" to the Putin price hikes.

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This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities.

I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

Mark Hake writes articles on InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

Phoenix, AZ
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