US awards contracts to buy 2.1 million more barrels to replenish reserves

The US Department of Energy has awarded contracts to purchase 2.1 million barrels of oil for delivery in February, as the Biden Administration continues to take advantage of lower oil prices in its efforts to replenish the Strategic Petroleum Reserve.

Phillips 66 received an award for 600,000 barrels, Sunoco partners marketing & Terminals got an award for 900,000 barrels and Macquarie Commodities Trading US received an award for 600,000 barrels, according to a Dec. 19 notice from DOE.

The barrels were purchased for $155,882,700, which translates to $74/b, well under the $79/b threshold that DOE established in October. At that time, DOE announced it would be posting monthly solicitations for oil for delivery from December until May.

DOE touted the recent awards as a good deal for taxpayers, noting that the price per barrel is well below the average of about $95/b that SPR crude sold for in 2022. The announcement "advances the president's commitment to safeguard and replenish this critical energy asset," DOE said in a statement.

A total of seven companies responded to the request for proposals, submitting 25 proposals, the statement said. The crude oil will be delivered to the Big Hill SPR storage site from Feb. 1, 2024 to Feb. 29, 2024, the statement said.

DOE has awarded a flurry of contracts in recent months, and more are expected.

"We forecast a continued increase in US SPR inflows throughout 2024," Rishabh Sharma, an analyst for S&P Global Commodity Insights, said Dec. 20.

"Estimated contributions from assumed repurchases and exchange return barrels could see around 36 million barrels of crude oil added to the SPR," Sharma said. "This includes an anticipated 16 million barrels from monthly repurchases and approximately 20 million barrels from exchange return transactions, with the exact timing remaining uncertain," he said.

This is a strategic time for the DOE to replenish the SPR, as potential developments in the Middle East region could trigger price shocks down the line. And it indicates an ongoing window with prices below the DOE threshold.

"If, as in the past, the department pairs (or precedes) its award announcement with a solicitation for April delivery, it would offer another data point toward de facto forward purchases to take advantage of crude oil price weakness," according to a Dec. 20 note from ClearView Energy Partners.