DOE launches SPR crude sale to coincide with Iran sanctions

Source: Jenny Mandel, E&E News reporter • Posted: Wednesday, August 22, 2018

The Energy Department yesterday announced a sale of 11 million barrels of crude oil from the Strategic Petroleum Reserve, a move that aligns congressionally mandated drawdowns with oil market stress stemming from U.S. sanctions on Iran.

For the newly announced sale, the department said it will release 6 million barrels associated with a three-year, 25-million-barrel drawdown under the 21st Century Cures Act and 5 million barrels under a 58-million-barrel, eight-year requirement under the Bipartisan Budget Act of 2015.

In the coming months, DOE could also be directed to sell sufficient crude to raise $350 million to cover repairs and upgrades to the SPR facility, under pending appropriations measures.

DOE has several legislative directives and authorities to sell crude from the SPR, as lawmakers in recent years have eyed the piggy bank that the oil stockpile represents and analysts have questioned the need for vast stored reserves in the face of growing domestic production.

Under International Energy Agency rules, the U.S. is required to maintain oil stocks equivalent to 90 days’ supply of its crude imports. Government estimates show that authorized and required sales could reduce SPR stocks by 40 percent over the next decade, from just under 700 million barrels to around 410 million barrels in 2028, while still meeting the IEA requirement.

Potential buyers in the current drawdown have until Aug. 28 to submit bids to purchase the oil, which will be sold at market-based prices, and will be required to take deliveries from Oct. 1 to Nov. 30.

Timing the crude oil sales to take place in October and November could be targeted to limit the price impacts of U.S. sanctions on Iran, which the White House has reimposed after dropping out of the global nuclear agreement negotiated by the Obama administration.

Sanctions kicked in earlier this month on certain Iranian goods, and beginning on Nov. 5, countries purchasing oil from Iran will face financial penalties from the U.S.

Countries may be able to get waivers from the U.S. sanctions if they show that they are significantly reducing their Iranian oil imports, but many view a recent tweet by President Trump that “anyone doing business with Iran will NOT be doing business with the United States” as a sign that such waivers will not be readily granted (Energywire, Aug. 8).

The president also has emergency authority to initiate an SPR sale associated with the sanctions imposition. In a research note, analysts with ClearView Energy Partners LLC said it is unlikely that such a release would be authorized before the crude sanctions bite on Nov. 5.

The timing of the Iran sanctions and the SPR sale also coincides with the run-up to congressional elections, which will take place on Nov. 6. High gasoline prices have traditionally been seen as a political challenge for incumbents.