USOI - Energy Could Prime The Pump
Summary
- Over the past six months, President Biden has drawn down one-third of the U.S. Strategic Petroleum Reserve in an attempt to lower WTI crude prices and ease consumers’ pain at the pump.
- The SPR is part of a longstanding multilateral agreement between the U.S. and 30 countries to hold at least 90 days' worth of net oil imports.
- Pipeline and gathering system infrastructure bottlenecks persist largely due to permitting and not in my backyard issues, keeping a lid on production.
By Sandy Pomeroy
At some point, the U.S. Strategic Petroleum Reserve will have to be replenished - and that could be great news for oil and gas investors.
Looking for income opportunities that could help buffer against inflation? Keep an eye on the oil and gas sector.
Over the past six months, President Biden has drawn down one-third of the U.S. Strategic Petroleum Reserve ((SPR)) in an attempt to lower WTI crude prices and ease consumers' pain at the pump. Maintaining the SPR is crucial to smoothing out harmful supply disruptions - meaning at some point, the piper must be paid.
The SPR is part of a longstanding multilateral agreement between the U.S. and 30 countries to hold at least 90 days' worth of net oil imports. However, the SPR drawdown we have seen recently is exclusively a U.S. phenomenon. Today, U.S. strategic stockpiles sit at 405,000 barrels (a level last seen in 1983). Considering that the U.S. consumes 20 million barrels of oil each day, our current reserve only has 20 days of supply at current consumption rates. If we stay true to the mission of holding 90 days of net oil imports, the SPR should hold a minimum of 728,000 barrels. Eventually, the U.S. government will become a buyer of oil, and that could put a floor under crude prices.
Furthermore, it is unlikely that high prices beget more oil production because many oil and gas producers have limited ability to increase output due to declining reserve quality resulting from the fact they generally produce their best assets first (i.e. the very best shale resources have already been drilled). Also, pipeline and gathering system infrastructure bottlenecks persist largely due to permitting and not in my backyard (NIMBY) issues, keeping a lid on production.
We believe investors may have an opportunity to capitalize on this shift.
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Energy Could Prime The Pump