The U.S. SPR currently totals 427 million barrels of oil, split evenly between sweet and sour crude
The statutory justification for the emergency release of approximately 180 million barrels related to Russia's invasion of Ukraine appears flimsy, in our opinion, but the appropriate size of the SPR has been debated for years and we believe it was appropriate to shrink the holdings
Mandatory sales of over 360 million barrels have been legislated by Congressional action since 2015 with most of those barrels remaining to be sold
Does SPR Size Matter?
The U.S. SPR will end 2022 at approximately 400 million barrels, the lowest level since the early 1980's.
Less concerning, combined SPR and commercial stocks remain relatively high and exceed levels from the early 2000's.
The scale of the release this year is quite literally off the charts. As the data indicates, there have only been four emergency releases in SPR history.
The Strategic Petroleum Reserve was authorized in 1975 by the Energy Policy and Conservation Act (EPCA) following the Arab oil embargo in recognition of the United States long-term dependence on imported crude oil and petroleum products.
The SPR has two statutory energy policy objectives: (1) reduce the national security and economic impacts of petroleum supply disruptions; and (2) carry out U.S. obligations under the international energy program (IEP).
The IEP is administered by the International Energy Agency which counts 31 member countries, who all generally agree to hold oil stocks equivalent to at least 90 days of net petroleum imports and to be ready to collectively respond to severe supply disruptions.
As U.S. shale oil production increased beginning in the mid-2000s, imports were reduced, significantly impacting required holdings under IEA agreements. Today, the U.S. is a net exporter of oil and petroleum products.
The SPR does not contain heavy crude oil. Only sweet and sour blends, even though a considerable amount of remaining U.S. imports are heavy oil. The DOE analyzed heavy oil storage and believed the cost-benefits and operational challenges do not justify storing heavy oil.
All oil purchases through the 2019 SPR Annual Report are shown below. 31% of all purchases came from Mexico, a country shutting off its oil exports in 2023.
But what strikes us as interesting is there are zero Canadian barrels in the SPR. Further, U.S. production and Canadian imports roughly equal crude oil inputs into U.S. refiners.
The statutory reasoning for the U.S. SPR is to protect from supply disruptions. As U.S. production has increased, the likelihood of supply disruptions has decreased. Further, as Canadian oil makes up an increasing share of U.S. imports, confidence in our supply security has increased.
If the U.S. produces significantly more of the oil it uses and has never had the desire to store crude from our Canadian neighbors in the SPR (also due to its largely heavy make-up), a smaller SPR seems easy to justify.
We have a deeper dive on the SPR coming, please continue to follow and share our work with colleagues.