The Department of Energy said Sep. 29 it will offer another 40 million bbl of crude from the Strategic Petroleum Reserve, pushing the emergency stockpile closer to its lowest level in more than four decades and renewing questions about the remaining buffer against a major supply disruption.

The SPR held 283.8 million bbl as of the week ended Sept. 25, according to DOE data. If companies draw the full 40 million bbl before returning replacement crude, physical inventories would temporarily fall to roughly 244 million bbl, before other inventory changes. That would put the reserve below the 252-million-bbl statutory threshold that governs certain limited drawdowns — though the threshold does not apply to DOE's exchange authority, the mechanism used for the latest offering.

Exchange terms and timeline

DOE's latest exchange calls for deliveries in November and December from the SPR's two Texas Gulf Coast storage sites, Bryan Mound and Big Hill. Companies must submit bids by Oct. 6, and the resulting contracts will set the schedule for returning the crude.

Demand for the oil is far from assured. DOE offered the same 40 million bbl volume in June; only one company agreed to borrow roughly 500,000 bbl. Traders at the time flagged the exchange's repayment premiums and crude-quality requirements as factors that made SPR barrels less attractive.

Under the program, companies return crude with a 25% premium. DOE said the exchange structure will save taxpayers more than $3 billion while replenishing the reserve through the premium payments.

The transaction forms part of a broader US commitment to release 172 million bbl from the SPR under a coordinated 400-million-bbl release by International Energy Agency member countries. DOE said its five previous solicitations awarded more than 133 million bbl across four completed exchanges.

Energy Secretary Chris Wright criticized European IEA members for delivering only a fraction of their pledged volumes under the coordinated release.

"While the United States and Japan are delivering on their commitments, several European member countries have released only a fraction of the crude oil and petroleum products they pledged," Wright said. "We urge every member country to fulfill their commitments."

Operational constraints

The Government Accountability Office warned in May that the SPR's ability to handle future drawdowns and refills faces risks from aging infrastructure, maintenance backlogs, and low inventories.

"The SPR's operational capability is at risk," the GAO report stated. As of last December, when inventories stood above 410 million bbl, the reserve could withdraw oil at only 61% of its design rate and refill at 56% of design rate. More than a quarter of the inventory was unavailable for drawdown at the time because of construction and cavern outages at the Gulf Coast complex.

GAO also cautioned that further inventory declines from emergency releases could compound the limits on the SPR's drawdown capability.

The watch item: bid submissions close Oct. 6. The level of company uptake — against June's single 500,000-bbl exchange — will signal both trader appetite for SPR barrels at a 25% repayment premium and the pace at which the reserve slides toward the 252-million-bbl statutory threshold.