Last Thursday, oil prices suffered a decline at the close of trading, ending a run of three consecutive positive sessions. This drop was caused by the statements of the American Secretary of Energy, Jennifer Granholm. Indeed, the latter announced that purchases of crude oil to replenish the strategic reserves of the United States could not be made this year. The announcement caused prices for a barrel of North Sea Brent cr ude for May delivery to fall 1.01% to close at $75.91. U.S. West Texas Intermediate (WTI), also due in May, was down 1.32% at $69.96.
The U.S. government had already drained about 40% of the strategic reserves (SPR), or about 250 million barrels, between September 2021 and January 2023 to relieve the price of black gold. Currently, SPRs are at their lowest level since December 1983. Joe Biden’s administration decided to formally discontinue the strategic reserve drawdown program last December, and then committed to replenish it. However, a first call for tenders was unsuccessful.
The difficulties encountered in replenishing the strategic reserves are related to maintenance work affecting two of the four RPD storage sites. SPRs are stored in huge salt caverns in Texas and Louisiana. In addition, the U.S. Department of Energy is required by an old law passed in Congress in 2015 to release an additional 26 million barrels from strategic reserves between April and June.
Despite the postponement of crude purchases to replenish strategic reserves, Jennifer Granholm said the U.S. government still plans to replenish them. However, this will take a few years, as it takes longer to fill the reserves than to empty them.
Finally, these statements caused some traders to take profits, as they thought that the government would start buying oil if prices fell below $70, which is currently the case. However, President Joe Biden said last October that the United States would buy crude oil from the market if prices fell to between $67 and $72.