After withdrawing over 221 million barrels of oil from the Strategic Petroleum Reserve (SPR) in 2022, Washington is struggling to replenish it in the new year as the Department of Energy (DoE) rejected the initial bids, saying they had failed benefit taxpayers.
Meanwhile, according to Bloomberg and Portal, the DoE has received several bids to buy in February to replenish the SPR. However, these offers were rejected because they were too expensive or did not meet other requirements.
For February, the plan was to buy 3 million barrels, ideally when the price of oil fell to around $70 a barrel. This 3-million-barrel pilot program would have given sellers a fixed price for future deliveries and is in contrast to the DoE’s normal operating procedure of buying oil for faster delivery without fixed-price contracts.
Right now, WTI is trading around $75/$76 a barrel and new Energy Information Administration (EIA) data released on Monday shows otherwise Draw 0.8 million barrels from the SPR.
According to Bloomberg, citing unnamed sources “familiar with the matter,” the DoE will now postpone its originally planned February purchases and take a fresh approach to fixed-price offerings.
“The DOE will select only bids that meet required crude specifications and are offered at a price that is convenient for the taxpayer,” the DoE said in a statement released by news outlets on Friday. “After reviewing the original submission, the DOE will not make a price selection for the February delivery window.”
The rejected bids encourage speculation that refilling the SPR will be a challenge at best.
The plan to fill the SPR, which has hit its lowest level since 1984, may not be attractive enough for sellers despite the DoE’s attempts at baiting.
Additionally, The Wall Street Journal speculates that the DoE may not have enough funds to fully populate the SPR. According to the WSJ, the DoE has purchasing power of $0.48 billion. At the desired $70 a barrel, that would provide enough funds to fill the SPR to 440 million barrels.
By Charles Kennedy for Oilprice.com
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