US Strategic Petroleum Reserve Replenishment to Face Multiple Headwinds, Here’s Why

The U.S. Department of Energy issued a bid solicitation announcement last week, saying that it will purchase 3 million barrels of sour crude oil. The bid will be finalised in June and suppliers will be required to make delivery in August. However, market participants pointed out that the US government’s road to replenishing the Strategic Crude Oil Reserve (SPR) may be very bumpy and will face many tests.

The reason why SPR's covering is more difficult in practice is that the US government has tried to buy crude oil earlier this year, but it ended in failure. In January, the U.S. Department of Energy canceled its 3 million-barrel replenishment program, claiming that the bids received were too high.

SPR regularly lends oil to refineries, receiving additional supplies in return. But direct purchases for SPR have been rare in recent decades.

In light of the above-mentioned failures, the US Department of Energy need to think about the actual operation of covering from the perspective of traders. The department needs to improve the way of bids which better reflects crude trade. That includes weighing market volatility and risk like oil companies do. The oil market may encounter many unexpected contingencies, including natural disasters, geopolitical tensions or changes in OPEC+ production policy.

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