The United States is depleting its strategic oil reserve faster than it seems

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The United States has become the world’s last resort for barrels of oil, single-handedly preventing prices in the energy market from skyrocketing further by selling off a large chunk of its Strategic Petroleum Reserve. Washington can’t use the reserve forever: It’s a finite reserve struggling against a potentially limitless flow shortage. More worryingly, the US is running out of cache much faster than it seems.

And that matters. The International Energy Agency warned earlier this week that “global oil supply may struggle to keep pace with demand next year.” The SPR may be the final cushion at the end of this year and in 2023 to put a cap on oil prices and global inflation. What Federal Reserve Chairman Jerome Powell and his colleagues around the world do with interest rates largely depends on developments in the energy market.

To understand the limits of the SPR, one has to delve into the pipelines of the reserve itself and the inner workings of the US oil refining industry. Over the past year, the White House sold nearly 115 million barrels from its treasury, with emissions rising to a record nearly one million barrels a day since mid-May. At the current rate, the US is selling more barrels of its reserves than the production of most of the medium-sized OPEC countries, such as Algeria or Angola.

If Washington maintains its current pace, the stockpile will be down to a 40-year low of 358 million barrels by the end of October, when releases will stop. A year ago, the SPR, located in four caverns in Texas and Louisiana, contained 621 million barrels. As the oil market looks today, it’s hard to see how Washington can stop selling in October. Removing that extra supply would mean commercial inventories would be quickly depleted, putting upward pressure on oil prices.

In theory, what remains beyond October would still allow the White House to sell more crude in November and December, and into next year. But there is a major problem: not all reserved oil is the same, and what remains is, increasingly, much less useful than what has already gone.

Generally speaking, SPR contains two types of crude: medium sour and light sour. The first adjective refers to the density of the oil, the second to the sulfur content. U.S. refiners generally prefer medium-acid crude, which is denser and has more sulfur, but it’s a variety they can easily process into gasoline and other products thanks to their highly sophisticated plants.

The sour medium the United States has set aside matches the type of crude its domestic refineries process. The stored sour medium has a gravity of 31.9 degrees API and a sulfur content of 1.44%, reflecting the average crude that U.S. refiners have processed over the past five years, which has a gravity of 32.6. degrees and 1.34% sulfur. The light-sweet in reserves has a much higher density, at 35.8 proof, and much less sulfur, at 0.4%. Medium-sour is the quality of crude oil pumped by Russia, most Middle Eastern countries, and Venezuela.

For this reason, the White House has prioritized the sale of barrels of medium acidity, satiating the appetite of refiners for their favorite crude. Over the last year, 85% of the oil sold by SPR has been of medium acidity, according to an analysis based on government data. Considering refining is one of the biggest bottlenecks in the oil market right now, catering to the preferred diet of American oil refiners is crucial. The largest companies, Marathon Petroleum Corp. and Valero Energy Corp., have been big buyers at SPR auctions in the past six months, helping the industry benefit from record refining margins.

As the White House fed U.S. refiners its preferred variety, those sales have dramatically reduced the amount of medium-acid crude in the reserve, and it is set to decline further in the next four months. OilX, a consultancy, estimates that by the end of October, the SPR will hold just 179 million barrels of medium-sour crude. To put that in perspective, during the period from June 2021 to October 2022, the US is likely to sell between 180 and 190 million barrels of medium-sour crude oil from the reserve. Clearly, Washington is running out of firepower to repeat that exercise.

What is left still leaves the White House with some ammunition, but not much. The government has already started offering more light sweet than medium sour crude in its most recent tender for SPR barrels. Regardless of refiner preference, any barrel is still better than no barrel. But with the good stuff almost gone, the world can no longer rely on the US strategic reserve to keep oil prices in check.

With that in mind, President Joe Biden’s trip to Saudi Arabia next month makes much more sense. The Saudis and their neighbors in the United Arab Emirates pump crude of medium acidity. That is all you need to know.

More from Bloomberg’s opinion:

Biden gives in to the Saudis as gas prices soar: Bobby Ghosh

The West’s energy war against Russia demands sacrifices: Liam Denning

• The rising cost of hitting Putin where it hurts: Lionel Laurent

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Javier Blas is a columnist for Bloomberg Opinion who covers energy and commodities. A former reporter for Bloomberg News and commodities editor for the Financial Times, he is co-author of “The World for Sale: Money, Power and the Traders who Trade the Earth’s Resources.”

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