A Focus on US SPR Restocking

With US Strategic Petroleum Reserves currently sitting at multi-decade lows, how could a restocking impact the tanker market?

US Strategic Petroleum Reserves – Restocking to Benefit Tankers_RESIZED

The war in Ukraine had a big impact on changing the trade flows, but also instigated large releases from SPRs (Strategic Petroleum Reserves), in an attempt to keep the crude oil prices under control, which has an additional significance in the current environment of high inflationary pressures. US SPRs have had the most significant impact as those are estimated to be around a half of global SPRs, and US have been leading the way in releasing additional barrels to the market. However, after releasing more than 180 million barrels since the start of the war in Ukraine, the SPRs are currently standing at the lowest level since 1983, and at just about half of 2010 levels. The US administration is criticised that the SPR levels, currently at just about 18 days of US consumption, are too low and that an attempt has to be made to raise the levels up. As one part of the plan for the replenishment of the reserves, the US DoE (US Department of Energy) secured the cancellation of 140 million barrels of congressionally mandated sales for the fiscal years 2024-2027. This will stop further planned sales from current reserves, but additional barrels have to be purchased if the SPR levels are to be brought up to higher levels.

The storage sites are located in close proximity to the Gulf of Mexico importing port facilities, with two sites based in Texas and another two based in Louisiana. The oil is stored in ‘salt caverns’ which were acquired by the US government in 1970’s after the crude oil price shock caused recession in major Western Economies, as at the time US was more dependent on crude oil imports.

Judging by the fact that the recently released barrels were sold at an average price of US$ 96 / bbl, and considering current crude oil prices, there seems to be room for potential profit. Despite the market’s hopes that the initial wave of purchases may be coming this year, the US administration recently announced that topping up SPRs may take years. It is understood that the significant volume purchases will not start before some point next year, when US SPR’s may be topped up by 40-60 million barrels, depending on crude oil prices at the time, as recently reported.

What seems to be of significance for the crude oil market is that the purchases of sweet crude oil grades are expected to be limited to 20 million barrels, while potential 20-40 million barrels are expected to be of sour grades. The US is predominantly producing sweet grades, while sour grades are imported. Furthermore as per 2022 data, US SPR’s ratio between sour and sweet grades stands at 60 / 40 in favour of sour grades. If indeed we see 20-40 million barrels of sour crude imported for the purpose of topping up SPR’s next year, this could equate to additional 10-20 VLCC voyages. If those voyages originate in the Middle East, this would benefit tonne miles growth for the sector. However, it is important to note that the US sour crude imports can be coming from markets closer to the US such as Mexico, Canada and potentially Venezuela. Nevertheless, the SPR top up is expected to bring some additional demand for crude oil tanker sectors over the next couple of years.