If the US sells oil from emergency reserves to help alleviate high energy prices as President Joe Biden has insisted several times, around 400,000 barrels per day (bpd) of sweet crude will be sold by the end of the year, according to data from US-based digital oil analytics firm OilX on Thursday.
Biden is preparing to sell oil from his country’s Strategic Petroleum Reserves (SPR) after exhausting other solutions to tackle high fuel prices which he blames for the country's increasing inflation. Last week, he requested that his top economic advisers focus on the issue.
Biden has repeatedly asked the Organization of Petroleum Exporting Countries (OPEC) and its allies, also known as OPEC+, to increase the group's output. However, the group did not relent to his demands and agreed to adhere to its production pact of 400,000 bpd in December.
The move has drawn widespread criticism, especially as it came on the heels of COP26, the United Nations climate conference in Scotland, where leaders are on course to reach an agreement to tackle global warming.
How much oil can US release?
The country is already selling oil from its emergency reserves on a scheduled basis and has planned to release 37 million barrels of crude in 2021 and 13 million barrels in 2022.
Around 28 million barrels of oil have already been released, and for November and December, the sale of 5 million barrels and 4 million barrels respectively is expected.
According to data compiled by OilX, in addition to the scheduled sale of 9 million barrels from the SPR, the country can only realize an incremental draw of 20 million barrels, or around 400,000 bpd, of oil, which the company predicts will have a limited effect on global crude balances.
“An additional SPR release with the aim of cooling prices would in our opinion have to be significant larger and furthermore will only result in a temporary relief,” it said, taking into account the forecast of a supply build in the first quarter of 2022 by the Energy Information Administration (EIA) and OPEC.
The analytics company also predicted that if there is any SRP oil sale, it would take place by the end of the year, given the predictions of a supply build at the beginning of 2022.
What type of oil can be released?
Sour crude accounted for 98% of crude drawdowns in 2021, while sweet crude accounted for only 2%. As of Nov. 5, the SPR composition will be about 41.4% sweet and 58.6% sour, the OilX research showed.
According to the Department of Energy, the SPR ratio reflects the needs of the US refining industry which will most likely take SPR crude in the event of a drawdown, particularly refiners in the Gulf Coast area.
The department also noted that sweet crude oil can be processed by nearly all refiners, however, “the same is not true for sour crude.”
OilX noted that the majority of SPR releases so far have been sour crude, however, the currently high desulphurization costs due to the rally in natural gas prices increased the demand for sweet crude from refiners on the Gulf Coast.
“Thus, if – and that is a big if – the US should decide to release barrels to the market then these should be sweet barrels in our opinion,” it said.
The US has the world's largest SPR of around 714 million barrels stored in huge underground salt caverns at four sites located on the Gulf of Mexico coast with access to refinery hubs, pipeline connections and marine terminals.
Under what conditions can reserves be used?
The US president can order a full or limited drawdown of SPR in the event of a significant increase in the price of petroleum products as a result of a major disruption in energy supplies.
However, this drawdown can never be in excess of an aggregate of 30 million barrels; for more than 60 days and should not be used if there are fewer than 340 million barrels stored in reserves./agencies
