WTI prices have continued to rise this week after President Obama and Vice President Biden announced plans to restart the oil-buying program known as the Strategic Petroleum Reserve. While it is difficult to gauge the impact of this program on global oil supply flows, the repurchases are likely to set an artificial price floor for WTI. It is also expected that US production will surpass a record high next year, adding to the demand for crude oil worldwide.
US production expected to reach new record next year
The Energy Information Administration (EIA) predicts US crude oil production will reach new record levels in 2023. The forecast is based on the production of the Permian Basin in West Texas. This area is producing more than 5 million barrels per day, a five-fold increase over the past decade.
In March, US production hit an all-time high of 13.1 million barrels a day. However, that output has fallen back to 11.6 million barrels a day in December. In January, the Permian Basin’s output is expected to reach 5.6 million barrels a day.
The EIA forecasts oil production to climb by nearly one million barrels a day from the current level in the next two years. That’s enough to bring the total domestic production up to 12.2 million barrels a day in 2019. By the time President Biden takes office in January, oil production is expected to rise by a further one million barrels a day.
US energy security needs
The price of WTI crude oil has been hovering around the $72 mark. It’s a sign that President Biden is planning to refill the nation’s Strategic Petroleum Reserve. The administration hopes the strategy will create more certainty about future demand for the commodity.
The SPR is an international energy obligation that is meant to be used in times of emergency. It was established to address disruptions in petroleum supplies. It has entered into negotiated contracts with private companies to manage short-term supply changes.
The SPR is an important asset to the U.S. government and its taxpayers. It’s also an important tool in foreign policy. It provides a stable source of oil at a time when Russian military activity is disrupting global energy markets.
Oil supply flows remain a challenge due to Russia’s actions in Ukraine
Russia’s actions in Ukraine have had a significant impact on the global energy landscape. Not only has Putin’s military action disrupted global markets, but the resulting economic and political uncertainty has also raised concerns about global energy security.
The effects of Russia’s invasion of Ukraine on the world’s energy market are clear, and the consequences are unlikely to fade. Traders are struggling to unload cargoes of Russian oil and natural gas and some companies are refusing to purchase Russian crude. This has led to a spike in international energy prices, which could continue for some time.
Russia’s oil and gas imports have been subject to an embargo in some European countries. In June, Russia began to reduce deliveries of its Nord Stream pipeline, which delivers natural gas from Russia to Europe. In early October, it halted the pipeline entirely.
SPR repurchases will add to global crude oil demand
As crude oil prices continue to drop, the US Department of Energy is preparing to announce plans to repurchase up to 15 million barrels of SPR oil. This would mark the largest-ever drawdown from the SPR.
The sale will give the US Department of Energy more buying power and create some price relief. But the approach will also encourage more production.
The SPR is one of the country’s most important national security assets. It is a major part of the Department of Energy’s efforts to manage energy markets. It was established in response to international obligations to ensure supply in case of a supply disruption. In the United States, the SPR holds over 400 million barrels of crude. It is the nation’s largest strategic reserve.
SPR repurchases are likely to set an artificial price floor for WTI
If you haven’t been paying attention to the oil price lately, you might have missed the recent announcement from President Biden and his administration that they are considering purchasing crude oil to replenish the US Strategic Petroleum Reserve. As a result, the price of WTI has tested the $67-$72 level.
The Biden administration is looking to fill its SPR at a relatively low cost, thereby providing the American economy with a stable supply of crude oil. The strategy is designed to boost long-term demand for American companies and to help moderate the upward price pressures of an oversupplied market.
The strategy is a win for the American government and for the nation’s energy security. It will provide certainty to producers and the industry about future demand. The approach also protects taxpayers.