Joe Biden is running out of ammunition to fight the next oil crisis

President Joe Biden spoke Tuesday with CNN’s Jake Tapper about Russian President Vladimir Putin’s war in Ukraine. Julio Cortez, Gavriil Grigorov/AP

• More oil releases from the Strategic Petroleum Reserve could hamper the Biden administration, analysts say.

• The key reserve will reach 346 million barrels after the next release in April.

• “Allowing this decline has put undue strain on American resources and limited our ability to respond to an oil market surge.”

Further releases from the Strategic Petroleum Reserve could hurt the Biden administration’s ability to combat a future oil shock, analysts say.

President Joe Biden, who has been open about using the SPR to lower gas prices, dumped more than 200 million barrels of oil from the reserve last year as Russia’s war in Ukraine rocked energy markets. The SPR, the world’s largest oil emergency stockpile, is now at its lowest level since 1983.

It will be tapped further in April with a Congress-ordered sale of 26 million barrels, taking the level to 346 million barrels – almost half of what it was when Biden took office. While that’s still more than last year’s release, in reality it could be less.

The International Energy Agency requires a minimum level of collective intervention from members like the US. RBC Capital Markets has valued the US obligation at around 315 million barrels. The minimum may include private sector inventories, but these are considered less reliable than the SPR.

And with the global energy market still uncertain a year after Russia’s invasion of Ukraine, the US could be vulnerable.

“Allowing this decline has unduly taxed American resources and limited our ability to react to an oil market spike,” said James West, senior managing director of Evercore ISI.

Russia has signaled that it is not done using energy as a weapon against the West. Earlier this month, oil prices rose after the Kremlin announced it would cut its crude oil production by 5% in response to sanctions.

Meanwhile, OPEC has no plans to increase oil supplies after halting production last year. Saudi Arabia’s energy minister said on Tuesday that the quotas set in October would remain in place until 2023, noting that the threshold for a change is high.

In the US, additional supply is also limited. Top oil companies have prioritized using their capital to increase shareholder returns over pumping more crude oil. This trend is unlikely to reverse. Last month, Chevron launched a massive $75 billion stock buyback program — triple its previous buyback — and increased its quarterly dividend by 6%.

And on the demand side, China is expected to consume more oil as it moves further out of its zero-COVID policy, putting pressure on supplies and prices.

“Once US SPR falls to 346 million barrels as a result of said release, there will be very limited scope for the White House to release more strategic stocks,” said Viktor Katona, Kpler’s senior crude oil analyst.

He acknowledged that the US is less dependent on oil imports as domestic crude oil production has risen sharply in recent years, meaning an external shock would hit differently than, say, a decade ago.

At the same time, the SPR is a safety buffer “in case all hell breaks loose,” such as a pipeline explosion, Katona added.

“So the 346 million barrels will most likely still be okay. Only the gradual shrinking of options is a bit worrying,” he said.

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