US and allies agree to emergency release of 60M barrels of oil from strategic reserves

The US and its allies are releasing 60 million barrels of oil from their strategic reserves after crude oil soared to a nine-year high amid Russia’s invasion of Ukraine. 

All 31 countries that are members of the International Energy Agency agreed to the release ‘to send a strong message to oil markets’ that there will be ‘no shortfall in supplies’ as a result of Russia’s invasion of Ukraine, the group said Tuesday.

Oil prices climbed even higher after the announcement, with WTI hitting $106 for a 10 percent gain on the day, as investors appeared disappointed that the strategic release was not larger. It marked the highest price for WTI since January 2011. 

Roughly half of the coordinated release will come from the US, which has a strategic stockpile of some 580 million barrels held in deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. 

The IEA board made its decision at an extraordinary meeting of energy ministers chaired by U.S. Energy Secretary Jennifer Granholm. 

Oil prices climbed even higher after the announcement, with WTI hitting $106 for a 10 percent gain on the day. It marked the highest price for WTI since January 2011.

Besides the United States, other members of the organization include the United States, Germany, France, the United Kingdom, Japan and Canada.

IEA members hold emergency stockpiles of 1.5 billion barrels of oil. The release amounts to 4 percent of stockpiles, or roughly 2 million barrels per day for 30 days.

It takes approximately 13 days for oil from the US strategic reserve to hit the market following presidential authorization. 

‘The situation in energy markets is very serious and demands our full attention,’ IEA executive director Fatih Birol said. ‘Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery.’

Russia plays an outsized role in global energy markets as the third-largest oil producer. 

Its exports of 5 million barrels per day of crude, amounting to about 12 percent of global oil trade. Some 60 percent goes to Europe and another 20 percent to China.

The decision came as oil prices soared Tuesday, with U.S. benchmark crude surpassing $100 per barrel for its highest price since 2014. 

The conflict in Ukraine has shaken markets globally and added to worries about economic growth in the face of rising inflation and plans from central banks to raise interest rates.

It’s only the fourth time in history that the IEA has done a coordinated drawdown since the reserves were established in the wake of the Arab oil embargo in 1974.

The prior emergency releases came in 1991 during the Gulf War, 2005 following Hurricane Katrina, and 2011 amid the US intervention in Libya’s civil war. 

Drivers pass a petrol station in Los Angeles last week. California has the highest gas prices in the US, with regular gasoline averaging $4.827 for a gallon

Rising oil prices have already sent the price of gasoline soaring for Americans. For every $10 rise in oil prices, gas goes up about 20 cents

In November, U.S. President Joe Biden announced a release of 50 million barrels of oil in coordination with several other energy-importing countries, but the measure had only a fleeting impact on oil prices, which have continued to rise.

On Tuesday, the global benchmark Brent crude rose $7.83 for April, or 8 percent, to $105.80 a barrel by 10.46am EST. 

U.S. benchmark West Texas Intermediate (WTI) crude for April rose $8.27, or 8.6 percent, to $103.99.

During the session, Brent crude hit its highest since August 2014 and WTI its highest since July 2014. 

WTI was headed for its biggest daily percentage gain since May 2020, with Brent headed for its biggest since August 2021.

The session highs for U.S. distillates and gasoline futures also were the highest since 2014.

‘Oil’s climbing the Ukraine war wall of worry,’ said John Kilduff, partner at Again Capital in New York.

American drivers are seeing prices at the gas pumps gradually increase due to rising oil prices. The above map shows which states have the highest average prices and which have the lowest

He said traders might have been disappointed that IEA countries were only looking to release about 60 million barrels from SPR, rather than a larger release.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, known as OPEC+, are due to meet on Wednesday.

‘OPEC(+) will likely stick to its original plan of a monthly 400,000 barrels per day (bpd) increase, which will not alleviate fears,’ said Tamas Varga at PVM Oil Associates.

Rising oil prices have already sent the price of gasoline soaring for Americans. For every $10 rise in oil prices, gas goes up about 20 cents. 

The national average price of regular unleaded gasoline hit $3.61 on Monday, up eight cents from the average of $3.532 a week ago. 

It’s also 25 cents higher than the average of $3.356 a month ago and nearly 90 cents from the average of $2.717 a year ago, according to the AAA Gas Price Index. 

Californians are paying the highest prices, shelling out an average of $4.827 for a gallon of regular unleaded gas as of Monday, up about eight cents from the average of $4.741 a week ago.

That’s 19 cents from the average of $4.637 a month ago and $1.14 from last year’s average of $3.681, AAA reported.  

Fast facts about the US Strategic Petroleum Reserve 

The Strategic Petroleum Reserve is a U.S. Government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts.

History 

The US created its petroleum reserve in 1975, after oil supplies were interrupted during the 1973–1974 OPEC oil embargo, to mitigate future supply disruptions. The first oil in the reserve was delivered in 1977.

Current inventory: About 580 million barrels in reserve out of 714 million barrels total storage capacity

Crude Oil Storage by Site (as of January 31, 2022)

• Bryan Mound – holds 218.2 MMB in 20 caverns – 66.6 MMB sweet and 157.5 MMB sour.
• Big Hill – holds 129.9 MMB in 14 caverns – 65 MMB sweet and 74.4 MMB sour.
• West Hackberry – holds 180 MMB in 22 caverns – 102.2 MMB sweet and 83.5 MMB sour.
• Bayou Choctaw – holds 60.1 MMB in 5 caverns – 18.9 MMB sweet and 52.1 MMB sour.

Oil pipelines stand at the U.S. Department of Energy’s Bryan Mound Strategic Petroleum Reserve in Freeport, Texas in a file photo

The US strategic petroleum reserve currently holds 580 million barrels of oil

Highest inventory: The SPR was filled to its then 727 million barrel authorized storage capacity on December 27, 2009; the inventory of 726.6 million barrels was the highest ever held in the SPR.

Average price paid for oil in the Reserve: $29.70 per barrel

Drawdown Capability

• Maximum nominal drawdown capability – 4.4 million barrels per day
• Time for oil to enter U.S. market – 13 days from Presidential decision

Investment to date: About $25.7 billion ($5 billion for facilities; $20.7 billion for crude oil).

Current days of import protection in SPR: At the end of CY 2019 (as of December 31, 2019), the SPR’s crude oil inventory was 634.9 MMbbl. 

This is equivalent to approximately 1,069 days of supply of total U.S. petroleum net imports.

Crude oil pipelines stand at the U.S. Department of Energy’s Bryan Mound Strategic Petroleum Reserve in Freeport, Texas in a file photo

Prior coordinated emergency releases from SPR 

1991: Release of 17.3 million barrels to minimize market disruptions during Persian Gulf War after Iraq invaded Kuwait.

2005: Release of 60 million barrels due to supply disruptions from the Hurricane Katrina.

2011: Release of 60 million barrels due to disruptions in Libya and other countries.