US crude oil stocks in the nation’s strategic crude oil stockpile have dipped to levels some energy experts find concerning, even as the Trump administration continues to draw from the Strategic Petroleum Reserve (SPR) to combat tight supplies and elevated gasoline and diesel prices caused by the Iran war-related closure of the Strait of Hormuz.
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The US Department of Energy (DOE) June 11 issued a new request for proposal to release an additional 40 million bbl of crude oil from the 714-million-bbl reserve, pushing the total competitive bidding process to the full 172-million-bbl authorized limit.
The drawdown is part of a cooperative international drawdown of emergency stockpiles to mitigate the war-related supply disruption. The US releases SPR crude as part of a swap program, under which oil companies acquire the crude now to combat supply disruption and agree to return those volumes, plus additional barrels, when supply is looser.
SPR inventory fell to 349.2 million bbl last week, lowering total reserve inventories to lows not seen since the Biden administration, which released during COVID and to combat supply losses at the beginning of Russia’s invasion of Ukraine. SPR crude dipped to 346.7 million bbl in July 2023.
DOE is releasing crude at a rate of 9 million bbl/week due to physical drawdown limits at the SPR’s four storage sites, with DOE in March estimating the discharge process to take 120 days and continue for about 4 months, through July.
With nearly 70 million bbl released so far, the stockpile is nearing levels not seen since the early 1980s, when the government was still filling the reserve, established in 1975. Inventories could fall to below 250 million bbl at the end of the release process if no additional volumes are added.
Operational concern
Energy experts have indicated that the SPR supplies are moving toward critical levels. "We're raising alarm bells right now. We're at about 350 million bbl left in the Strategic Petroleum Reserve," said American Petroleum Institute President Mike Somers told CNN June 3. "You have to have about 20% of that left for it to be operational, for our system to operate, so we're getting to levels where we're starting to be concerned."
On the other hand, US Energy Secretary Chris Wright told Fox Business June 5 that he is "not concerned at all" about dwindling SPR stocks. He said that because it is an exchange program, the return oil will start flowing once the disruption is over, and that the reserve will grow by 40-million bbl because companies taking oil now have agreed to replace the oil at greater volumes than taken out. "This will happen at no cost to the American people," he said.
Tuttle Capital Management chief executive Matthew Tuttle, in an email, noted "the market is pricing in a 'we'll refill it later' assumption. That's exactly the kind of complacency that creates asymmetric risk for energy investors," he said.
At 250 million bbl, which reflects the full release under the March order and represents about 13 days of US oil consumption, the SPR "isn't just low—it's structurally low," Tuttle said. He called the SPR a "reduced shock absorber" and wrote that the next supply disruption, whether it's a Strait of Hormuz incident, hurricane, or other event, "hits the spot market harder and faster than it would have in 2020." Because crude prices are likely to remain above pre-war levels for months after the Strait of Hormuz opens, the "refill timeline stretches years, not months," exacerbating the risk in emergency situations.
California reserve
Meanwhile, the Trump administration is in "active dialogue" to create a new petroleum reserve in California, POLITICO reported last week.
Energy Secretary Chris Wright told POLITCO in an interview that the reserve was under discussion but did not offer details. A June 2 document that lawyers for Sable Offshore Corp., which owns a trio of oil platforms off the California coast, sent to the Energy Department and seen by the news outlet, shows the company has proposed a West Coast Strategic Petroleum Reserve "in response to the inquiries made by the Trump administration and in the furtherance of Sable’s ongoing discussions with the Department of War for the supply of oil and gas to California." Wright said the reserve is necessary because California imports about 60% of its oil from abroad, threatening US military bases in the state.
Neither DOE nor Sable responded to request for comments.
