Cutthroat oil competition threatens US quest to refill Strategic Reserves

Stiff global competition for sour crude oil is threatening to complicate the Biden administration’s plan to buy up to 3 million barrels to refill the depleted US Strategic Petroleum Reserve.

Prices for sour crude — the kind the US government is trying to buy — have jumped amid expectations for the SPR purchases, buoyed by tighter supplies due to OPEC+ production cuts and the startup of new refineries. While the Biden administration is targeting $67 to $72 a barrel, traders said it may end up paying more than that.

In an attempt to sweeten the deal, the Energy Department has revamped the pricing method for its plan after a failed attempt to solicit barrels earlier this year. It will now include a combination of the three-day average settlement price of benchmark US crude futures, the benchmark Americas sour crude price and the offer price — a system that will make it easier for traders to hedge using financial contracts.

The US plan to refill reserves has helped support oil prices that have been weighed down by expectations of a recession. But traders say the volume of crude is still too small to significantly tighten global markets — particularly since it will focus on buying the kind of high-sulfur sour grades that are in limited supply.