The Biden administration announced plans Friday to provide nearly 2 million barrels of oil to refineries through an emergency exchange and simultaneously begin efforts to replenish the Strategic Petroleum Reserve early next year.
The new emergency exchange is aimed at addressing “potential supply disruptions” caused by the shutdown of the Keystone Pipeline due to a leak earlier this month, the Energy Department said. Part of that key pipeline remains shuttered and no timeline has been issued for a full reopening.
Emergency exchanges allow oil refineries to borrow oil from the SPR for a short period due to supply disruptions such as hurricanes or pipeline outages. Unlike with emergency sales such as the record-setting release of 180 million barrels announced in March, this oil must be returned.
In this case, the Energy Department agreed to provide 1.2 million barrels of oil from the SPR to ExxonMobil and 600,000 barrels to Phillips 66.
At the same time, the Biden administration is beginning plans to repurchase crude oil for the SPR for the first time since that unprecedented release earlier this year.
The Energy Department is planning to solicit bids to repurchase up to 3 million barrels of oil for the SPR to be delivered in February, the senior administration official said. The repurchase will pilot a new approach to buy back the oil at a fixed price, the official said.
“Small but a signal that pledges to refill are credible,” former Obama energy official Jason Bordoff said on Twitter in response to the new steps.
The senior administration official conceded it will take months or even years to refill the SPR, whose stockpiles are at the lowest level in 38 years.
Comprised of underground salt caverns in Texas and Louisiana, the SPR is the world’s largest supply of emergency crude oil. It has been used during times of war and natural disaster to ease supply crunches.
The move to begin to refill the SPR — and to lock in a price — comes as oil prices have plunged to one-year lows amid recession fears.
“This repurchase is an opportunity to secure a good deal for American taxpayers by repurchasing oil at a lower price than the $96 per barrel average price it was sold for, as well as to strengthen energy security,” the Energy Department said in a statement.
The administration announced in October that it planned to repurchase oil for the SPR when prices are at or below roughly $67-$72 a barrel. Officials said at the time such a move would help boost demand and provide the oil industry with an incentive to keep pumping even during times of stress.
Oil prices dropped nearly 4% on Friday morning to as low as $73.33 a barrel. Oil trimmed its losses after the Energy Department announced the SPR moves, with crude recently trading down 1.5% to $75 a barrel.
Prices are currently in a “very useful” range to begin the process of refilling the SPR, the senior administration official said.
Officials stressed that the efforts to refill the SPR won’t prevent future emergency releases in the future, if necessary.
“The SPR remains ready to respond to energy security needs today. We will be prepared and as nimble as we can to make sure the SPR is doing everything it can on behalf of energy security and American consumers,” the senior administration official said.
The Energy Department also took a bit of a victory lap for the decision to release 180 million barrels of oil following Russia’s invasion of Ukraine.
Noting that gas prices are now at 15-month lows, the senior administration official said that historic release “helped provide some breathing room for American families at the pump,” the official said.