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Explainer – What is the SPR, the emergency oil resource that Biden is tapping into?

US President Biden discusses US response to Russian invasion of Ukraine in Washington and warns CEOs of possible cyberattacks from Russia
FILE PHOTO: U.S. President Joe Biden discusses the United States’ response to the Russian invasion of Ukraine and warns CEOs of possible cyber attacks from Russia at the Business Roundtable’s CEO Quarterly Meeting in Washington, DC, the United States, on March 21, 2022. REUTERS/Leah Millis

March 31, 2022

By Timothy Gardner

NEW YORK (Reuters) – President Joe Biden on Thursday will announce the release of one million barrels a day of crude oil for the next six months from the US Strategic Petroleum Reserve to cool oil prices, the largest such release from the reserve in history.

The move comes as oil prices have skyrocketed since Moscow invaded Ukraine on February 24 and subsequent sanctions by the United States and its allies against Russia.

The latest amount of US oil release would make available 180 million barrels of oil, or the equivalent of about two days of global demand, and would be the third time the United States has tapped the SPR in the past six months.

It’s also possible that the International Energy Agency, the global energy watchdog of which the United States is a part, will also release kegs at the IEA nations meeting on Friday.

The 31-member IEA, which represents the industrialized nations but not Russia, on March 1 chaired the fourth coordinated oil release in its history of over 60 million barrels of crude — the largest to date.

As part of the IEA’s March release, the United States committed to releasing 30 million barrels of SPR oil.

Earlier in November, Washington pledged to release 50 million barrels of SPR oil, though an expected move in tandem from China fell through as prices surged along with demand recovery for the COVID-19 pandemic.

WHY WAS THE SPR CREATED?

The United States established the SPR in 1975 after the Arab oil embargo drove up gasoline prices and hurt the US economy. Presidents have tapped stockpiles to calm oil markets during wartime or when hurricanes hit oil infrastructure along the US Gulf of Mexico.

HOW MUCH OIL DOES THE SPR RUN?

The reservation currently contains approximately 586 million barrels in dozens of caverns at four heavily guarded locations on the Louisiana and Texas coasts. The country also maintains small reserves of heating oil and gasoline in the northeastern United States.

HOW DOES SPREL BRING OIL TO MARKET?

Due to its location near major US refinery or petrochemical centers, the SPR can transport up to 4.4 million barrels per day. According to the Department of Energy, it may take as little as 13 days from a presidential decision for the first oil to hit the US market.

Typically, as part of a sale, the Department of Energy holds an online auction where energy companies bid on the oil. In a swap, oil companies take crude oil but have to give it back plus interest.

Three times in the past six months, US presidents have approved fire sales from the SPR, most recently in 2011 during a war in OPEC member Libya. Sales also occurred during the 1991 Gulf War and after Hurricane Katrina in 2005.

Oil changes have been more frequent, most recently in September after Hurricane Ida.

WHICH OTHER COUNTRIES HAVE STRATEGIC RESERVES?

The United States is responsible for about half of the world’s strategic oil reserves.

The United States and the other IEA member countries, which include Britain, Germany, Japan and Australia, are required to hold oil in emergency reserves equivalent to 90 days of net oil imports. Japan has one of the largest reserves after China and the United States.

China, an associate member of the IEA and the world’s second largest oil consumer, established its SPR 15 years ago and held its first oil reserve auction in September. Another associate member of the IEA, India, the third largest oil importer and consumer, also maintains a reserve.

According to the IEA, state storage in the Organization for Economic Co-operation and Development, most of whose members belong to the IEA, amounted to almost 1.2 billion barrels of crude oil in January.

(Reporting by Tim Gardner in Washington; Editing by David Gaffen and Marguerita Choy)

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DUSTIN JONES

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