I struggled with where to ask this, but I’m mostly interested in facts and maybe some educated guesses, so I’ll try it here in GQ. (Or FQ I guess – still not used to that.)
I’ve known for a while that we’ve been drawing down reserves to offset global petroleum shocks caused by blockades through the Strait of Hormuz. However, recently things are looking more dire:
The reserves have fallen below 300 million barrels for the first time since 1983, when the reserves were relatively new and still being filled up.
The current drawdown of 172 million barrels will be complete in a month or less and will leave the level at 243 million barrels.
The statutory minimum is 252.4 million barrels. Why we’re able to breach this is not completely clear, but probably results from declaring this an emergency.
The absolute operating minimum is variously described as 70 to 100 million barrels. After that the caverns the oil is stored in can degrade, and there are some issues with sludge making oil unrecoverable as well.
Something else called the practical operating minimum is 250 to 300 million barrels. Breaching that will put a strain on the pumps and other infrastructure. It appears we’re going to find out if that’s true or not.
Anyway, all that adds up to terrifying to me. Am I wrong? The markets seem jittery, but not in an obvious panic. What happens when we complete the drawdown? Will gas prices jump again? Or will we do another drawdown despite the risks? Will the market finally start to panic when they see the U.S. operating without the safety net that the oil reserves represent?
I’m not interested in blame in this thread, just in where we could be headed.
There are two kinds of declarations the president can make, for the more minor situation (a temporary oil shock) the statutory minimum is the 252.4 million barrels. But a President can also declare a major emergency–and there is no statutory minimum for this. Considering how frequently Presidents have declared national emergencies in the last 50 years, this is not an obstacle. As to your practical operating minimum it is simply that is simply where you still get your highest drawdown rate. When you go below that you can’t pull oil out of the caverns at fast. [there are several dozen caverns, and some of them will become empty, etc]. So when you get down to 70-100 million barrels your withdrawal rate is going to be a small fraction of what it was at 250 million barrels.
Oil is an international market so what happens when you get to this level also depends on what is happening elsewhere in the world. But I expect big gas price increases, and if price controls are imposed big lines. Frankly I am surprised that gas prices haven’t continued increasing massively.
Different sources give different takes on this, but generally it looks like extraction rates start declining in the range we’re at now and even more when we fall below 250 million barrels in a few weeks. At 70 to 100 million barrels, further extraction becomes impossible.
The question here assumes that oil will continue to be taken out and no new oil added. For the short term that will be true. There is a longer term putback, although the dates on that are uncertain.
Over 133 million barrels were lent rather than sold to companies required to return the same volume, with repayment premiums reaching 28%.
Trump’s 172-million-barrel release is slightly smaller than Biden’s 180-million-barrel release in 2022 after Russia’s invasion of Ukraine. Although far fewer barrels can be inputted per day than extracted, a return to previous conditions seems to be years not decades.
Now that we’re not in FQ, it could be that with a 28% repayment premium the emptying of the oil could just be a grift by Trump rather than a strategic necessity.
Remember back in April of 2020 when the price of West Texas Intermediate futures briefly fell below zero? Why didn’t the U.S. government buy enough futures to fill the Strategic Petroleum Reserve to capacity?
Futures weren’t below zero. The negative cost was if you were going to actually physically take custody of the oil, since it was beyond storage capacity at some places with still more of it coming in through the chain of production. You’d have to find a way to warehouse the excess capacity temporarily and make sure no more of it comes in, and having someone promise to take it off your hands in the future won’t help you with that.
When this was bumped I thought it would be about this article:
Fresh water is often pumped into the caverns during rapid drawdowns, which dissolves the salt walls, Misra said. This “creates flatter, less stable roof and severely thins the critical salt pillars that separate adjacent caverns, greatly increasing the geological risk of a structural cave-in,” he said.
The SPR was originally designed for five full drawdowns. Instead, it has executed dozens of large and small releases over the past 40 years, Misra said.
“Because the system was not designed for this many cycles, the repeated injection of water and extraction of oil have caused severe cavern deformation, accelerated the rate of massive salt falls from the ceilings, and significantly weakened the overall structural integrity of the aging reserve,” he said.
Energy Department officials told the GAO that they are “holding the SPR infrastructure together with ‘Band-Aids,’ and that it is uncertain how long they will hold.” More than a quarter of the SPR inventory was “not available for drawdown due to a combination of construction outages and cavern outages” as of December 2025, the GAO found.
If a place in Oklahoma (prices for spot delivery were for Cushing, OK) was advertising free beer but only for the next 12 hours but the other catch is they have to show up in person and arrange their own transportation, that severely limits potential takers to folks who either already have infrastructure in place or live nearby. Or else, a willingness to spend a fair amount of money to arrange last minute pick up and transport of that ‘free’ beer. Living near the Gulf Coast, it wouldn’t be worth it for me to spend the money on gas, food, etc driving up to OK in the first place or to pay somebody to drive it down.
And note those prices lasted less than a day, as it was the last day for May Futures. The next day switched to June Futures and spot prices shot right back up.
It’s easy to say pipelines exist but pipeline capacity is generally spoken for. It’s a bit difficult to arrange, at the last minute, any sort of meaningful transport short of hijacking somebody else’s property. And the contracts are for actual physical delivery. If you didn’t have pipeline capacity literally the minute you bought the oil, you couldn’t take physical delivery.
And that was the crux of the problem. The folks who bought May futures earlier faced the prospect of paying a financial penalty because they could not take physical delivery of the oil and short term leasing of rail tanks because the main Cushing tanks were full.
So, it made sense to pay people to take those futures (and associated penalties) off their hands. After a little bit of that, prices rebounded (it opened and closed positive the same day). Especially the next day when things switched to June futures and they had a whole month to work with.
And as another reminder, prices went below 0 for only a brief period on April 20 itself (it opened and closed positive on that same day) and once a few thousand barrels’ worth had sold, prices rebounded positive. This wasn’t a situation that existed even for half a day. This isn’t a problem of a slow government. There are few organizations at all that can or will purchase anything at scale given a couple hours notice, and there wasn’t any significant quantity of oil they would have been able to purchase at those rates - as soon as a few thousand barrels sold (plus paying the penalty for inability to take physical delivery), the price rebounds, i.e. the volume available at negative prices (plus the penalty) was not ever very high.
The ‘negative’ price represented the penalties and fees associated with storage outside of the Cushing tanks. Basically it was a fake price because the actual price was the extra cost to deal with the hassle.
Sure, and a lot of capacity was bought up at that point and the SPR was essentially full.
The current drawdowns are more about politics rather than economics. Or rather, they’ve almost always been more about politics. And, whether people want to admit it or not, that means paying a premium
Dumb layman question, but would it be better or worse to just make a massive underground concrete man-made facility with electrical lighting, climate control and other features to store the SPR, instead of the salt caverns that come with their salt-cavern problems?