Washington Offers 40 Million Barrels of Emergency Oil as the Reserve Nears a 44-Year Low

The Trump administration is offering to lend energy companies up to 40 million barrels of crude from the Strategic Petroleum Reserve, the Energy Department said Tuesday, the final installment of the 172 million barrels the United States pledged in March to a coordinated release by about 30 International Energy Agency member nations.

A second attempt at the same 40 million barrels

This is not a new pledge. It is a second attempt at the same tranche. In June, the administration offered the final 40 million barrels of its IEA commitment and later disclosed that companies had agreed to borrow only about 500,000 barrels, barely one percent of what was on offer. Tuesday's announcement puts the same 40 million barrels back on the table, with companies given until October 6 to submit proposals. If the full amount is borrowed this time, Washington will have delivered its entire 172-million-barrel share of the 400-million-barrel global action launched after the Iran war began in late February. The department's solicitation documents describe the crude originating from the Big Hill and Bryan Mound sites on the Gulf Coast, and note four previous solicitations that awarded more than 133 million barrels across three completed exchanges.

The emergency tank is running on fumes

The reserve now holds less than 284 million barrels, the lowest since 1982. Barron's notes the stockpile sits below the 300-million-barrel level at which the Gulf Coast salt caverns can operate at full capacity. The reserve ended August with 286.6 million barrels, more than 445 million below its maximum capacity, and commercial crude stocks had fallen by more than 48 million barrels over the 20 weeks to September 1 even as emergency barrels kept flowing out. A full 40-million-barrel draw would leave roughly 242 million barrels in the ground, per ClearView Energy Partners' estimates, uncomfortably close to the 252.4-million-barrel line below which federal law bars the president from ordering routine, small drawdowns. The latest release could temporarily push the reserve below that threshold, though the president retains authority to order releases for genuine emergencies. A 1981 Government Accountability Office report counseled against going below 250 million barrels except during a very severe emergency.

Why refiners might bite this time

The incentive sits in the shape of the futures curve. Oil is in steep backwardation, with barrels for near-term delivery priced above barrels for later dates, which means a company can borrow from the government, sell or refine at today's high prices, and hand back cheaper barrels later plus an in-kind interest payment, ClearView analyst Kevin Book told the Journal. The Energy Department says borrowers repay in crude with premiums of up to 24 percent, a structure it says stabilizes markets at no cost to taxpayers, and earlier exchanges returned barrels at a 26 percent premium, according to the department's June solicitation documents. The department expects the exchange program to ultimately return roughly 200 million barrels to the reserve, though the full return of this oil is not expected until late 2028.

The missing European barrels

Energy Secretary Chris Wright said the United States and Japan have honored their pledges under the IEA agreement, but that several European member countries have released only a fraction of the crude oil and petroleum products they promised. The White House has separately pressed the European Union to draw down emergency diesel inventories, Reuters reported, as diesel prices hit records above $6 a gallon. The EU has not disclosed how much its members have actually released, and the International Energy Agency has said Europe's contribution will come mostly as refined products rather than crude, thin comfort for a market short on middle distillates. Distillate inventories stood 14 percent below the five-year average at the start of September, with gasoline 6 percent below normal seasonal levels.

The October 6 test

The bid deadline will show whether this re-offer fares better than June's 500,000-barrel showing. Then comes the pump: gasoline is running about $4.45 to $4.46 a gallon, nearly 50 percent above where it stood when the Iran war began in late February, and diesel is at record highs around $6.50, the political pressure behind the move with the November midterms approaching. And there is the market's own verdict: Brent and WTI barely moved Tuesday, trading around $96.34 and $89.72 against $96.82 and $91.67 earlier in the day, a sign traders doubt 40 million loaned barrels will loosen a market this tight. Brent remains up nearly 25 percent since before the war began.

Emergency reserves exist for emergencies. The uneasy arithmetic of Tuesday's announcement is that Washington is spending the last of its pledged cushion with the tank already at a 44-year low. If a genuine supply shock arrives after this oil goes out, the buffer left behind will be the thinnest in a generation.