Commodities
Factbox-Biden administration slowly puts oil back into the SPR emergency stash
© Reuters. FILE PHOTO: An oil storage tank and crude oil pipeline equipment is seen during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson/File Photo
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WASHINGTON (Reuters) – The administration of President Joe Biden is slowly putting oil back into the Strategic Petroleum Reserve, after selling a record amount from the emergency stockpile in 2022.
Here are some facts about the SPR and U.S. efforts to replenish it.
WHAT IS THE SPR?
It is the world’s largest emergency oil stash. The United States created the SPR in 1975 after the Arab oil embargo spiked gasoline prices and damaged the U.S. economy. Presidents have tapped the stockpile to calm oil markets during war or when hurricanes hit oil infrastructure along the U.S. Gulf of Mexico. The oil is held in heavily-guarded underground caverns at four sites on the Texas and Louisiana coasts.
HOW MUCH SPR OIL WAS SOLD IN 2022?
In 2022, the administration announced a sale of 180 million barrels over six months from the reserve, the largest ever SPR sale, in an effort to control fuel prices after Russia’s invasion of Ukraine. The Energy Department also conducted a sale of 38 million barrels in 2022 that had been mandated in laws passed by Congress.
HOW MUCH IS COMING BACK?
The administration has bought back 13.82 million barrels, of domestically produced, sour, or relatively high sulfur oil that many U.S. refineries are engineered to distill into fuels.
It also has sped up by several months the return of nearly 4 million barrels to the SPR from loans to oil companies. The oil is expected to be returned by February instead of mid-year.
The pace of the buybacks is being tempered by planned life extension maintenance at two of the four SPR sites, department officials have said.
Quick buybacks of much larger volumes could also risk pushing up oil and gasoline prices ahead of the presidential election in November, analysts have said.
HOW MUCH OIL DOES THE SPR HAVE NOW?
The reserve currently holds 354.4 million barrels, nearly 60% of which is sour crude. The most oil it has ever held was nearly 727 million barrels in 2009.
The sales in 2022 sank the level of the SPR to the lowest in about 40 years, and even with the buybacks, the level is clinging to its lowest since late 1983.
That angered some Republicans who accused the Democratic administration of leaving the U.S. with a thin supply buffer to respond to a future crisis.
The administration says it has a three-pronged strategy to return oil to the reserve. That includes buying back oil, the return of oil loaned from the SPR to companies, and its work with Congress to cancel congressionally mandated sales of 140 million barrels of SPR oil through 2027 that both Democratic and Republican lawmakers had voted for in previous laws.
The U.S., which is producing oil at record volumes with more increases expected this year, also has more crude in the SPR than it is required to as a member of the Paris-based International Energy Agency, the West’s energy watchdog. Under the agreement, the U.S. is required to hold 90 days’ worth of net petroleum imports.
AT WHAT PRICE DOES THE U.S. WANT TO BUY OIL BACK?
The administration says it sold the 180 million barrels at an average of about $95 a barrel. It wants to buy back oil at $79 a barrel or less. The current West Texas Intermediate oil price of about $72 a barrel allows such purchases. But prices could go back up given the risk of the war in Gaza expanding to the greater Middle East, or effects from the conflict in Ukraine.
DOES THE ADMINISTRATION HAVE MONEY TO BUY MORE?
The Energy Department has about $3.67 billion left in its SPR buyback fund, enough to purchase about 46.5 million barrels at the $79 a barrel price, according to ClearView Energy Partners, a nonpartisan research group.
The department says it will release monthly plans to buy back oil in increments through at least May.
The last bid of up to 3 million barrels for April delivery was released on Jan. 3.
Investing.com– Gold prices hit a record high in Asian trade on Monday amid growing bets that the Federal Reserve will cut interest rates by a bigger margin later this week.
Reports of a second assassination attempt on Republican presidential nominee Donald Trump also spurred some demand for safe havens, although Trump appeared to be unharmed, and the assailant apprehended.
Asian trading volumes were somewhat limited by market holidays in Japan, China, and South Korea.
rose 0.4% to a record high of $2,589.02 an ounce, while expiring in December rose 0.1% to $2,613.70 an ounce.
Gold benefits from rate cut bets as Fed looms
A softer allowed for more strength in gold prices, as markets awaited a Fed meeting.
The central bank is widely expected to on Wednesday, although markets are split between a 25 or 50 basis point cut.
showed markets split exactly 50% over the two options, with bets on a bigger cut coming back into play on concerns over weakness in the labor market.
The central bank is also expected to kick off an easing cycle from this week, with analysts expecting at least 100 bps of rate cuts by the end of the year.
Lower rates bode well for precious metals, given that they reduce the opportunity cost of investing in non-yielding assets.
rose 0.4% to $1,004.80 an ounce, while rose 0.8% to $31.332 an ounce.
Trump assassination attempt spurs some safe haven demand
Gold saw some safe haven demand after reports of a second assassination attempt on Trump, this time at his golf course in Florida.
But secret service agents foiled the attempt in a reported shootout with the assailant, who was later apprehended by authorities. Trump was unharmed during the event, stating as much in a message on his fundraising website.
Copper prices steady after weak Chinese data
Among industrial metals, copper prices benefited from a softer dollar. But gains in the red metal were held back by a string of weak economic readings from China, the world’s biggest copper importer.
Benchmark on the London Metal Exchange rose 0.1% to $9,276.0 a ton, while one-month rose 0.1% to $4.2225 a pound.
A string of data released from China over the weekend showed and grew less than expected in August, while rose and fell.
The readings ramped up concerns over an economic slowdown in the country, which could bode poorly for its appetite for copper. But ANZ analysts said that the government could now have more impetus to release stimulus measures.
By Robert Harvey
LONDON (Reuters) -Oil prices edged higher on Monday as ongoing disruption to U.S. Gulf oil infrastructure balanced persistent demand concerns after a fresh round of Chinese data while investors await a likely cut to U.S. interest rates this week.
futures for November were up 46 cents, or 0.64%, at $72.07 a barrel by 1207 GMT. futures for October rose 52 cents, or 0.76%, to $69.17.
The market is likely to remain cautious until the Federal Reserve makes its interest rate decision on Wednesday, said Phillip Nova analyst Priyanka Sachdeva, adding that prices are still supported by some supply worries given that some capacity remains offline in the Gulf of Mexico.
Traders are increasingly betting on rate cut of 50 basis points (bps) rather than 25 bps, as shown by the CME FedWatch tool that tracks fed fund futures.
Lower interest rates typically reduce the cost of borrowing, which can boost economic activity and lift demand for oil.
However, a cut of 50 bps could also signal weakness in the U.S. economy, which could raise concerns over oil demand, said OANDA analyst Kelvin Wong.
Saxo Bank analyst Ole Hansen, meanwhile, said activity is likely to remain light ahead of the Fed meeting, adding that the outcome “looks like a coin toss between 25 and 50 bps”.
Nearly a fifth of crude oil production and 28% of output in the Gulf of Mexico remains offline in the aftermath of Hurricane Francine.
Weaker Chinese economic data released over the weekend dampened market sentiment, with the low-for-longer growth outlook in the world’s second-largest economy reinforcing doubts over oil demand, IG market strategist Yeap Jun Rong said in an email.
Industrial output growth in China, the world’s top oil importer, slowed to a five-month low in August while retail sales and new home prices weakened further.
Oil refinery output also fell for a fifth month as weak fuel demand and export margins curbed production.
Brent and WTI each gained about 1% last week but remain comfortably below their August averages of $78.88 and $75.43 a barrel respectively after a price slide around the start of this month driven in part by demand concerns.
Investing.com — Oil prices rose Monday, benefiting from ongoing disruption to U.S. Gulf oil production as well as a softer dollar ahead of an expected interest rate cut by the Federal Reserve later this week.
At 08:05 ET (12:05 GMT), rose 0.7% to $72.11 a barrel, while rose 0.8% to $68.30 a barrel.
Rate cuts in focus as Fed meeting looms
A softer was the biggest point of support for oil prices, as markets positioned for an from the Fed on Wednesday.
The central bank is likely to kick off an easing cycle, although traders are split over a 25 or 50 basis point cut.
Still, lower rates bode well for economic growth, which in turn could help keep U.S. fuel demand supported in the coming months.
Continued disruption in Gulf of Mexico
Also helping the tone was the continued disruption of production in the Gulf of Mexico following the arrival of Hurricane Francine.
Nearly a fifth of crude oil production and 28% of natural gas output in U.S. Gulf of Mexico federal waters remains offline, the U.S. offshore energy regulator said on Sunday.
Francine hit Louisiana as a Category 2 hurricane on Wednesday, eventually cutting power in four southern states.
Chinese economic data underwhelms
But gains were capped by persistent concerns over slowing demand, especially following a slew of weaker-than-expected economic data from China over the weekend.
and both missed expectations, while rose and fell.
The readings ramped up concerns that slowing economic growth in the world’s biggest oil importer will dent its appetite for crude.
Analysts at ANZ said Beijing was likely to roll out more stimulus measures to help support local economic growth, although they still expect gross domestic product to come below the government’s 5% target in the third quarter.
Concerns over China saw both the Organization of Petroleum Exporting Countries and the International Energy Agency slash their outlook for oil demand growth in the current year.
Holidays in China and Japan also kept trading volumes relatively slim.
(Ambar Warrick contribute to this article.)
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