RE:SPR Depletion - So What?It comes down to #crudequalitymatters.
Most of the oil the US produces is light sweet, unusable by most US refineries. For decades, oil was imported from the middle east, and other countries, medium or heavy sour. Refineries were built to use these grades, and built well before the shale boom, which produces the lightest of all grades. This is why the US must export WTI, and import heavy sours to balance.
The US woud be better served to have a strategic products reserve, immediately available for use without waiting for refining. Typically on average, there are only about 4.5 days of crude on hand for refineries to use.
Days of reserve supply should be measured in grades of oil that the US refineries actually use.
If the imported supply is disrupted, there will be a severe shortage as refineries can't process light sweet.
An SPR of this type of oil is a wise thing.
If anything, Canada is the SPR for the US, not the Permian or other shale basins.
In terms of energy security, it was utterly stupid for them to have cancelled Keystone.
Experienced wrote: Biden's action regarding the release of oil from the SPR on a daily basis essentially has the effect of increasing the daily production of oil in the US. This, along with other factors, has resulted in the oil price declining for which Biden is taking full credit in the hopes that the democrats at least keep control of the Senate. We will soon find out if this political strategy worked or not.
The result of using the SPR in this way has reduced the reserve to its lowest level in decades. The Biden Administration has signalled that it will buy back the oil if the oil price goes down to around 80 a barrel.
The question/thinking in my mind is whether they need to replace this oil or not.
The US oil situation right now is much different than it was decades ago when the SPR was set up. Back then, the US was major bet importer of oil and the bulk of those imports were from the Middle East and subject to oil embargos. This is not the case today and so this suggests that replenishing the SPR is not necessary.
The counter argument is that the Biden "Green" initiatives which are designed to curtail US production of oil in favour of electric cars and renewables will, over time, result in declining US oil production. When you combine this with a pragmatic view of this transition, you arrive at the conclusion that there be an oil shortage and hence a replenished SPR will be necessary as a stopgap measure. Whether this will happen or not is anyone's guess but the odds are in favour a future shortage of US production in future years.
Sooo...this suggests that the Biden plan to replensih the SPR is a sound strategy but the question becomes - "At what cost?" The odds are pretty high that unless they can replenish it during the recession I am predicting when I believe that we will see the price of oil fall from current levels, replenishing the SPR later will result in higher oil prices in the future and fuel yet another round of inflation which is not a good thing.
Will be interesting to see how this plays out.