US to release 53.3 million barrels from strategic oil reserve

The United States is releasing 53.3 million barrels of crude from its Strategic Petroleum Reserve (SPR), a significant move to counter soaring gasoline prices as a prolonged global supply disruption threatens to extend into 2027. The intervention comes as U.S. gasoline prices surpassed $4.50 a gallon for the first time since July 2022.

"The energy supply shock that began in the first quarter is the largest the world has ever experienced," Amin H. Nasser, President and CEO of Saudi Aramco, told investors on Monday. He warned that even if the blockaded Strait of Hormuz were to reopen immediately, "it will still take months for the market to rebalance, and if its opening is delayed by a few more weeks, then normalization will last into 2027."

The Department of Energy confirmed the sale on May 11, with deliveries scheduled between June and August to coincide with the summer driving season's peak demand. Major buyers in the auction included the trading house Trafigura Group and U.S. refiners Marathon Petroleum Corp. and Exxon Mobil Corp. The sale is part of a coordinated action by the International Energy Agency to calm global markets.

This release accelerates the already historic pace of drawdowns from the nation's emergency stockpiles. In the week ending May 8, SPR inventories fell by a record 8.6 million barrels, bringing the total down to approximately 384.1 million barrels, according to data from Bloomberg. The move highlights the severe pressure on global energy supplies following the closure of the Strait of Hormuz, a critical chokepoint for global oil shipments.

A Supply-Led Crisis

The current market turmoil is a supply-led, not a demand-driven, crisis. Nasser estimates the market has seen an "unprecedented supply loss of about a billion barrels of oil," which has been partially offset by government SPR releases and alternative flows like Saudi Arabia's East-West Pipeline. The pipeline has been operating at its maximum capacity of 7 million barrels per day to bypass the strait.

Still, the pressure is immense. "If the current disruptions continue at this rate, the market will lose around 100 million barrels for every week the Strait of Hormuz remains closed," Nasser stated. This rapid depletion is straining a system where inventories were already low before the crisis began.

Willie Chiang, CEO of Plains All American Pipeline, echoed the sentiment on his company's earnings call, noting that the destocking of reserves will eventually require a massive "restocking phenomenon longer term" as nations move to replenish their emergency supplies, creating an additional layer of future demand.

Political and Market Implications

The sustained high prices have clear political ramifications. The Trump administration on Monday said it would seek to suspend the 18.4 cents-a-gallon federal gasoline tax to provide immediate relief to consumers, a move that budget analysts estimate would cost billions in lost monthly revenue.

For now, the SPR release provides a crucial, if temporary, supply injection. The 53.3 million-barrel sale is the second-largest single auction in the reserve's history. It is part of a larger 172 million-barrel commitment the administration has made under a "swap" program, where companies will eventually have to return the crude. To date, 133.1 million barrels have been released under this program.

While the release aims to put downward pressure on prices, the warnings from industry leaders suggest a long and volatile road ahead. With global inventories dwindling and major supply routes disrupted, the market's ability to absorb further shocks is being severely tested.

This article is for informational purposes only and does not constitute investment advice.