The US is hoping to replenish its emergency oil reserves, starting with a purchase of three million barrels of crude.
President Joe Biden had released a record 180 million barrels of oil from the Strategic Petroleum Reserve [SPR] to address the supply disruption in the second quarter
The record 180 million barrels release from US SPR was meant to address the significant global supply disruption caused by Russia’s invasion of Ukraine.
“This repurchase is an opportunity to secure a good deal for American taxpayers by repurchasing oil at a lower price than the $96 per barrel average price it was sold for, as well as to strengthen energy security,” the US department of energy said Friday.
The SPR is usually kept for purposes of responding to situations such as hurricane-related shutdowns at oil refineries.
The decision to make the biggest ever dip into the emergency oil reserves, was President Joe Biden’s strategy to calm energy markets and protect the world’s biggest economy from Ukraine war shocks.
In March, the US announced plans to release a record one million barrels of oil into the market every day for six months.
Major energy exporter Russia was hit with US and European sanctions soon after it invaded Ukraine in February, causing turmoil on markets.
Kremlin has threatened to use its influence in energy supplies as an economic weapon against the West, which supports Ukraine’s fight to repel Moscow’s invasion.
The releases helped lower fuel prices for American families, the department of energy said. Meanwhile, retail fuel prices are now the cheapest since September 2021 and are down by more than $1.80 per gallon since their peak in June 2022, it added.
The Biden administration has repeatedly said that it reserves the right to do more sales if needed.
The crude purchases are being made using a new rule tweak that allows the energy department to buy oil using fixed-price forward purchase contracts and encourage short-term production.
Under current regulations, the department of energy can enter into contracts for future delivery, but the price paid reflects prices at the time that the product is delivered.
“Relative to conventional purchase contracts that expose producers to volatile crude prices, this new approach, when used at scale, can give producers the assurance to make investments today, knowing that the price they receive when they sell to the SPR will be locked in place,” the statement said.
The SPR is the world’s largest supply of emergency crude oil and the federally owned oil stocks are stored in underground salt caverns at four storage sites in Texas and Louisiana.
The SPR has a long history of protecting the economy and American livelihoods in times of emergency oil shortages, according to the statement.