Crude prices fall as US holds off on replenishing reserves

Oil prices slid on Friday after US energy secretary Jennifer Granholm said it would take “years” to replenish the country’s strategic stockpiles, undermining hopes that the federal government would soon return to the market as a major buyer.

Brent crude, the international benchmark, slipped as much as 4 per cent to $72.68 a barrel. West Texas Intermediate, the US marker, fell by a similar margin to $66.82 a barrel following Granholm’s comments and amid a broader sell-off in US markets.

Granholm indicated the Biden administration would struggle to make significant crude purchases this year to refill the US Strategic Petroleum Reserve despite a commitment to buy back barrels when US crude prices were “at or below about” $67 to $72 a barrel.

“This year it will be difficult for us to take advantage of this low price,” Granholm told a congressional hearing on Thursday, blaming a congressionally mandated sale of 26mn barrels this year and maintenance work at two of the four sites where the reserves are held.

“I think market participants were expecting — some were anyway — that the DoE (Department of Energy) would be refilling since prices have entered the Biden buy-zone,” said Bob McNally, head of consultancy Rapidan Energy Group and a former energy adviser to the George W Bush administration. “And they’re not for these reasons. So I think that’s why she had to come out and say: look, it’s a little hard here.”

The SPR currently holds 372mn barrels of crude, according to the Energy Information Administration, its lowest level since 1983, after US president Joe Biden drew down record volumes last year as he sought to keep a lid on prices at the pump.

Biden ordered an initial 50mn barrel release in 2021 amid a surge in petrol prices and then an unprecedented 180mn-barrel drawdown last year following Russia’s full-scale invasion of Ukraine. Congress had earlier mandated separate smaller releases.

The administration said in October it would refill the reserves when crude prices fell in an effort to put a floor under prices and encourage drillers to increase supply. But Granholm poured cold water on hopes the US would significantly replenish stockpiles this year.

Amos Hochstein, Biden’s international energy envoy, had previously indicated that the administration would not rush to refill the reserve. “Nothing happens overnight. You have to decide that this is the right environment, so therefore you wait to see where the prices are going to be landing,” he told Bloomberg TV last week, as prices dropped into the repurchase target range.

Analysts said that notwithstanding the difficulties in refilling the reserves, a small repurchase remained possible in the latter part of the year.

“We want to get it back to where it would have been,” Granholm said on Thursday. “It will take a few years. It takes longer to refill than it does to extract.”