US to sell additional 20 million barrels of oil from strategic petroleum reserve

Move is aimed at curbing soaring fuel prices

The Bryan Mound Strategic Petroleum Reserve, an oil storage facility, in Freeport, Texas, US. Reuters

The US Department of Energy on Tuesday said it will sell an additional 20 million barrels of oil from its strategic petroleum reserve (SPR) in a bid to control escalating petroleum prices.

This is the fifth release that US President Joe Biden has authorised to shore up oil supplies in response to tightening crude supply amid the Russia-Ukraine conflict.

In March, the US announced plans to release a record one million barrels of oil into the market every day for six months.

Since then, the US has sold more than 125 million barrels into the market, including about 70 million barrels that have already been delivered to purchasers and additional barrels planned to be delivered to customers in the coming weeks, the White House said in a statement.

“With these releases, [Mr Biden] has executed a drawdown of unprecedented size and scope to respond to the energy market disruptions posed by Russia’s invasion, and his actions are having an impact,” the statement said.

The US expects to “continue to deliver barrels for several more months”, the White House statement added.

The country's action is made “in addition to agreements with International Energy Agency member countries for collective action to address the market disruption caused by Russia’s invasion of Ukraine”, it said.

Oil prices have remained volatile in recent weeks as fears of a recession affect demand while concerns continue to rise about supply constraints amid the war in Ukraine.

Brent, the global benchmark for two thirds of the world's oil, was trading 0.24 per cent lower at $104.90 per barrel at 9.17pm UAE time on Tuesday. West Texas Intermediate, the gauge that tracks US crude, was down 0.90 per cent at $95.83 a barrel.

Inflation in the US touched a 40-year high in June mainly due to high fuel prices.

The US Treasury Department estimates that the SPR releases by the Biden administration and its international partners have reduced the price of petrol by up to 40 cents per gallon.

Average petrol prices in the US currently stand at about $4.32 a gallon, or 4.54 litres, data from the AAA motoring website showed. This is down from roughly $5 a gallon last month.

The US also announced steps to repurchase oil for the SPR in future years, likely after the 2023 financial year, “to help stabilise the market and encourage near-term supply”.

“These actions will enable the administration to continue the work of shoring up supply and bringing prices down,” the statement said.

The Biden administration said it is also moving ahead with a proposal to allow fixed-price forward purchases of crude oil to replenish the SPR and encourage short-term production.

Unlike conventional purchase contracts, which expose producers to volatile crude prices, the fixed-price contracts offer producers a “locked” price when they sell to the SPR.

This will provide “some protection against downward movements in the market”, the statement said.

The proposal, if finalised as written, would encourage “near-term production, promote market stability and put the federal government in a better position to respond to future market volatility”, the White House said.

Under current regulations, the Department of Energy can enter into contracts for future delivery, but the price paid reflects prices at the time that the product is delivered.