US emergency crude stockpile hits lowest since 1982 amid Iran release

A smaller strategic reserve reduces Washington's capacity to respond to a fresh supply shock, a factor that could add to crude's risk premium if the conflict with Iran escalates. Goldman Sachs last week estimated that spot Brent trades at a premium of nearly $25 a barrel above fair value, citing near-record-low global inventories as one factor keeping prices elevated. Because the release is structured as an exchange, roughly 200 million barrels are due to be returned to the reserve, so refilling will create a source of demand later and could support prices further out. For now, continued drawdowns add barrels to the market at a time of tight supply, but traders are likely to watch how much firepower remains in reserve.

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America's emergency oil stockpile has been doing exactly what it was designed for, and the cost is a reserve now back at levels not seen since the early 1980s.

Summary:

• Crude stocks in the US Strategic Petroleum Reserve fell to around 283 million barrels last week, the lowest since October 1982, Reuters reported, citing Department of Energy data.
• The drawdowns are part of a US commitment to release 172 million barrels, announced on 11 March.
• The US release is part of a 400 million barrel coordinated release agreed by 32 IEA member countries in response to Middle East supply disruptions.
• The release is structured as an exchange, with around 200 million barrels due to be returned to the reserve.
• The SPR is less than 40% full, against an authorised capacity of 714 million barrels across four Gulf Coast sites.

US Strategic Petroleum Reserve crude stocks fell to around 283 million barrels last week, their lowest level since October 1982, according to Reuters, which cited Department of Energy data.

The decline reflects an ongoing release of 172 million barrels from the reserve, agreed by the US on 11 March as part of a coordinated response to supply disruptions from the war with Iran. The US contribution is the largest share of a 400 million barrel release of crude oil and refined products unanimously agreed by the 32 member countries of the International Energy Agency.

The release has been slower than initially planned. In March, the Department of Energy said deliveries would take about 120 days at planned discharge rates, which implied completion by around mid-July. Instead, drawdowns have continued into October. Based on Energy Information Administration data, the reserve now holds roughly 130 million barrels less than when the release began.

The reserve was created in the 1970s after the Arab oil embargo exposed US vulnerability to supply shocks. It has an authorised storage capacity of 714 million barrels held in underground salt caverns at four sites along the Gulf Coast. At current levels, it is less than 40% full.

Unlike an outright sale, the release is structured as an exchange. Companies that take barrels from the reserve must return them later with additional volumes, and the Department of Energy has said it expects to recover around 200 million barrels within a year at no cost to taxpayers. That means the drawdown should eventually reverse, although refilling will itself add to oil market demand once it begins.

The low level comes as crude prices remain elevated. Goldman Sachs said last week that spot Brent carries a risk premium of nearly $25 a barrel above its estimate of fair value, pointing to the threat of further supply disruption and near-record-low global inventories. A depleted emergency reserve leaves the US with less room to respond if the conflict escalates and supply is disrupted again.

The pace of further drawdowns, and the timing of any refill, will be closely watched by oil traders in the coming months.