The Biden administration is trying to increase the global supply of crude oil and reduce gasoline prices by tapping the U.S. Strategic Petroleum Reserve – the federally owned stock of emergency crude oil. About 1 million barrels of crude oil from the reserve are being made available each day for sale to the highest bidding company. Some of the companies have then chosen to export some of the oil to countries around the world, including China.
In a July 5 article, Reuters reported: “More than 5 million barrels of oil that were part of a historic U.S. emergency reserves release to lower domestic fuel prices were exported to Europe and Asia last month, according to data and sources, even as U.S. gasoline and diesel prices hit record highs.”
Refiners around the world use crude oil to make gasoline and other fuels.
The article, which also said that the “export of crude and fuel is blunting the impact” of President Joe Biden’s moves “to lower record pump prices,” has prompted several readers to ask FactCheck.org about the sales.
However, because the price of gasoline depends largely on the cost of crude oil, which is mostly based on global supply and demand, experts told us that oil sold from the reserve does not need to stay in the U.S. to bring down gasoline prices.
“Whether it stays in the United States or goes somewhere else is less important than does it succeed in changing the global balance of supply and demand, because that’s what drives the price,” Mark Finley, a fellow in energy and global oil at Rice University’s Baker Institute for Public Policy, told us in an interview.
And since Congress lifted a nearly 40-year ban on most U.S. crude oil exports in 2015, the Department of Energy, which maintains the stockpile, cannot dictate whether companies can export oil purchased from the petroleum reserve, the department said in an email.
As we’ve written before, the Strategic Petroleum Reserve, or SPR, was established in 1975, after the 1973-74 Arab oil embargo against the U.S. caused domestic energy supply shortages and damaged the national economy.
The reserve is currently authorized to hold more than 700 million barrels of emergency crude oil that can be released under certain conditions. That includes emergency drawdowns due to oil supply disruptions, such as those caused by the COVID-19 pandemic and the Russian invasion of Ukraine in February – which are two of the main factors driving up gasoline prices in the U.S. and elsewhere. (See our July 1 story “Gasoline Prices Up Due to Global Supply-Demand Issues, Russian Invasion of Ukraine.”)
In late March, to counteract a decline in the global supply of oil that has contributed to price increases, the White House announced that Biden had authorized the release of about 1 million barrels of crude per day from the reserve for six months. (That came after previous, smaller authorized releases in the fall of 2021 and earlier in 2022.)
For each sale, the Energy Department announces the type and amount of oil from the four SPR sites that will be auctioned in a competitive bidding process. By law, the contracts are awarded to the companies that make the highest bids, and any company that is registered in the SPR’s Crude Oil Sales Offer Program is eligible to make an offer.
In the end, the government can use money from the sales to restock the petroleum reserve, which the Biden administration has said it will start doing in the fall when it expects crude oil prices will be lower. As of the week of July 8, the SPR held around 485 million barrels of crude oil – the lowest amount since the mid-1980s, and down about 15% since the end of March.
“The Administration’s use of the SPR is exactly what it was created to do: to address the significant global supply disruptions,” the Energy Department argued in an email responding to our questions about the sales. “Putin’s war on Ukraine destabilized global supply and the emergency sales are meant to provide supply certainty and act as a bridge until domestic production increases, in turn help to mitigate the cost increases for American families.”
But after the Reuters story was published, some conservative politicians, pundits and media outlets criticized the Biden administration for allowing a portion of the country’s emergency oil supply to go abroad.
A July 7 story from the Washington Free Beacon focused on nearly 1 million barrels of the reserve’s oil that was sold in April to Unipec America, an arm of the Chinese oil and gas company Sinopec, which has, or had, some connection to the president’s son, Hunter Biden. (Hunter Biden once was part of BHR, a Chinese investment fund company that purchased a stake in a Sinopec subsidiary that sells oil products. In March, the Washington Examiner reported that Chinese and American business records still showed Hunter owned a minority stake in BHR, although a lawyer for Hunter told the New York Times in November that he no longer held any financial interest, directly or indirectly, in the company.)
However, the Department of Energy said that U.S. subsidiaries of foreign energy companies have long been eligible to place bids on SPR oil.
Prior to 2015, “it was unlikely any product delivered to the winning bidder was exported outside the US,” the department’s email said. But that changed after the broad export ban on U.S-produced crude oil was lifted that year.
“U.S. companies are permitted to place bids on SPR crude oil; DOE cannot dictate what selected bidders will do with the SPR crude oil after delivery,” the department explained.
For example, U.S. oil refiner Phillips 66 is one of the American companies that has purchased SPR oil made available this year. Reuters reported that, in June, the company shipped about 470,000 barrels of the crude oil it bought to Italy, according to government data. The news agency found that other companies that bought reserve oil also made shipments to the Netherlands, India and China.
Still, it’s “rare” for companies that purchase oil from the reserve to export it, the Energy Department said, adding that it “is only possible to know retroactively where oil is sent after delivery, and not when oil is delivered to the selected bidder.”
The Exports Still Help Gas Prices
“The markets for crude oil and for gasoline are global,” Lutz Kilian, senior economic policy advisor at the Federal Reserve Bank of Dallas, said in an email. “Selling this crude (whether at home or abroad) will tend to lower the global oil price, which is what determines what refiners pay for crude oil. Hence, lower crude prices allow the price of gasoline in the U.S. (and elsewhere) to decline.”
Finley of the Baker Institute said that American refiners have to determine if they can use the reserve oil that will be released. If not, it may be of use abroad.
“Each individual refinery is optimized for its marketplace and is built to run optimally on a certain type of crude oil and to produce a certain mix of gasoline and diesel fuel,” he told us. “And so it may be that the type of oil being offered from the Strategic Petroleum Reserve doesn’t perfectly match what the U.S. refiners are looking for and it might be a better match for the specific requirements of refiners elsewhere.”
Kilian made a similar point.
“If the oil released is medium sour, for example, a U.S. refiner specializing in light sweet crude would not be interested,” he explained. “There may be spare capacity at a refinery in Europe, however, that specializes in processing medium sour crude, so trade makes sense.” (Light and medium refer to the density of the crude oil, and sweet and sour refer to measures of its sulfur content.)
Patrick De Haan, head of petroleum analysis for the fuel-price tracking service GasBuddy, told us in an interview that so far the SPR releases are having an impact on gasoline prices by “preventing prices from escalating more substantially” – not so much by “actively pushing prices down.”
He said that dynamic would not change if the oil from the SPR was used exclusively by refiners in the U.S. to make gasoline.
“The government’s role is to supply oil to a market that needs it. It’s irrelevant where it goes as long as it’s going into the market,” De Haan said.
Furthermore, the U.S. already exports plenty of oil to other countries, including China, and has done so for years. Annual exports of crude oil have averaged around 3 million barrels per day since 2019.
That’s significantly more oil than the almost 260 million barrels of crude oil that Biden announced would be released from the emergency reserve between October 2021 and October 2022 — only some of which has been exported.
Editor’s note: FactCheck.org does not accept advertising. We rely on grants and individual donations from people like you. Please consider a donation. Credit card donations may be made through our “Donate” page. If you prefer to give by check, send to: FactCheck.org, Annenberg Public Policy Center, 202 S. 36th St., Philadelphia, PA 19104.
Nemo me impune lacessit