🛢️ Less reserved

As the on, off on-again, off-again, still-on, off-again, definitely still-on war between the US and Iran continues, American oil reserves are continuing to dwindle. 

In the last week, the US Strategic Petroleum Reserves (SPR) hit 286.8 million barrels, its lowest level since 1982, according to Gas Buddy’s Patrick De Haan. To put that in perspective, that’s less than two weeks worth of normal American oil consumption. In January, before the US began its war with Iran, the SPR had just over 415 million barrels. And before Russia’s invasion of Ukraine prompted an energy market freakout and a Biden-administration plan to release and slowly buyback oil, the SPR had over 588 million barrels.

A large part of the decline in the SPR is simply it doing what it was created by Congress to do: help stabilize oil markets during times of natural disasters or geopolitical turbulence. But any reserve, of course, has its physical limits. 

“Operating below 250 million barrels pushes the infrastructure into a dangerous zone," Siddharth ⁠Misra, a petroleum engineering professor at Texas A&M University, told Reuters, with the news agency adding that “the absolute physical floor for the SPR is 70 million barrels.”

That’s because the US stockpile is not, as is perhaps popularly imagined, stored in the kind of massive, above-ground tanks often seen near oil refineries. Instead, the SPR is housed in a series of underground caverns carefully engineered by flooding enormous salt deposits on the Gulf Coast with water, which is then pumped out, leaving a void in the salt formation – some of the caverns are as deep as the Empire State building is tall – that is filled with oil. As oil is drawn out of a cavern, it’s replaced with water. If there’s too much water in a cavern, the leeching process that created the cavern in the first place can accelerate.

The Takeaway 

We haven’t hit SPR lows yet. The current draw down is set to continue until reserves hit just over 240 million barrels. And not only is buying a few hundred million barrels of oil very expensive, but the purchases have to be directly funded by Congress.

And if you’re thinking that the easy thing to do is just take the oil that is reportedly going to be coming from Venezuela and pump it into the SPR, think again: Venezuela oil is extra-heavy, “sour” crude with a high sulfur content. Great stuff if you’re in the refinery business, but the SPR is not set up to hold untreated heavy crude. 

And as the strategic reserve empties, filling it is getting a bit more expensive. US oil futures closed Monday up around 3% Monday. 

– Ben Walsh 

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