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Revisiting Our Depleted Oil Reserves
The Biden Administration has severely degraded our petroleum reserves…and our national security.
Back in February 2023, I wrote an extensive article examining the structure and status of our Strategic Petroleum Reserve, which is intended to store a supply of oil for emergencies. The SPR was inspired by the 1973 Arab oil embargo that disrupted America for weeks.
At the time of the article, the Biden administration had drawn down the reserve in an effort to lower skyrocketing gasoline prices, caused by Biden’s own economic policies, in the lead-up to the 2022 mid-term elections. It was a blatant attempt to buy votes.
At that time, the SPR declined from a peak of 726 million barrels in 2009 down to 371 million barrels by the end of January 2023. Since then, the SPR has declined further to 351 million barrels, its lowest level in 40 years.
Promises to begin refilling the SPR have come to naught. The government has published several bids for purchase, only to reject them all when the bid price came in too high. That’s what happens when the government’s offer price is below the market value of oil.
Currently, the only buffer for our oil supply is the Middle East, where war is threatening between Israel and Gaza, with the potential for involvement of the entire region if the war spreads. Biden has placed the US in a precarious position with regard to energy security. We have plenty of oil reserves here in the US, but even if Biden releases them for development it will take months before significant oil reaches the market. Biden’s quest to choke off fossil fuels may end up choking the US economy…to death.
Daniel Yergen, author of The Prize: The Epic Quest for Oil, Money & Power, was recently quoted on CNBC saying the Strategic Petroleum Reserve is almost at the point where it’s past the comfort level.
“We’ve used about half of it, so it would be harder to use it. And we’re kind of getting to a level where you don’t want to use it.”
The US is currently consuming around 19,140,000 barrels daily, so the SPR represents an 18-day supply of oil. In fact, though, the number of days is much less. Some of the oil is simply unreachable in the caverns. Some of it has been sold and is committed but still held in the Reserve. None of it has been refined, which must take place before the oil can enter the market, and a small percentage of oil is lost in the refining process.
The Federal Reserve Bank of Dallas, however, seems to think we no longer need to refill the Reserve to previous levels. According to them, “An analysis finds that a complete refill of the SPR may be unnecessary depending on policy objectives. Instead, the SPR could be recalibrated at a lower absolute level of inventory for the type of supply disruption it was originally intended to mitigate.” So, nothing to worry about.
The Dallas bank attributes the massive drawdown that began in early 2022 to the Russian invasion of Ukraine, with no mention of the soaring prices due to Bidenflation and vote-buying prior to the 2022 mid-term elections. During the Trump administration, domestic oil production soared and the US was essentially energy independent. Much less oil was being imported. The Strategic Oil Reserve is calibrated in how many days of oil imports it can replace, so the Dallas bank assumes that, due to the increase in domestic oil production during the Trump administration, since we are importing less oil we can refill the SPR to a lower level than before. In other words, if you want to make a problem go away, redefine the problem.
Unfortunately, domestic oil production has collapsed thanks to the Biden administration and prices have soared to a point where the federal government cannot afford to refill the reserve, a task that would require billions of dollars. The government is looking to purchase oil in the $60- to $70-dollar range. Oil is currently selling for $87.20 a barrel as of this writing. It’s not hard to fathom what happens when the government submits an offer to purchase oil at $65 a barrel.
“Appreciate the offer, but no.”
A net exporter of crude oil in 2019, the US was expected to be a net importer in 2022. It was pretty much a wash that year, but the US achieved net importer status this year. That’s a big comedown from the halcyon years of the Trump administration when US energy independence was the future.