U.S. strategic oil reserves reached 284.6 million barrels for the week ending September 18, down from 285.0 million barrels the previous week and 406.0 million barrels a year ago.
Continuous Decline in Oil Reserves
According to data from the U.S. Department of Energy, oil reserves fell to 283.8 million barrels the following week, the lowest level since October 1982. This year, reserves have reached multi-decade lows twice; first in early August when reserves fell below 300 million barrels and then below the 1983 level.
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Reasons for the Decline in Reserves and Its Impacts
This decline in reserves is attributed to the release of 172 million barrels authorized by former U.S. President Donald Trump in March. This release was part of a coordinated plan to release 400 million barrels by 32 member countries of the International Energy Agency (IEA). The oil releases are planned to last approximately 120 days, and the U.S. government has promised to return about 200 million barrels over the course of a year at no cost to taxpayers.
There are two different levels for determining minimum reserves. Federal law sets the operational minimum at 252.4 million barrels, while the general operational minimum is considered to be between 250 and 300 million barrels for optimal oil pumping and processing, which is currently testing this level. Ben Cahill, an energy analyst at the Atlantic Council, has warned that releases are accompanied by diminishing returns and at a certain point, this action becomes a suicidal move, as further oil releases to the market are influenced by the perception that our options are running out.
The decline in reserves aligns with what Saul Konik of MST Marquee has described as "living on the credit card of the oil market." Oil flows through Hormuz are still operating at about one-third of pre-war levels, and the decline in reserves, rather than new supply, has kept Brent oil prices below $110 during most crises. About 133 million barrels of this decline have been structured in exchange with companies Shell, Vitol, and Trafigura, which are obligated to return 1.25 barrels for every barrel they have withdrawn, with deliveries set to begin early next year.
