Efforts to refill the US emergency oil reserve are being slowed, in part, by companies delaying their return of borrowed barrels.
Shell Plc, TotalEnergies SE and Chevron Corp were among nine companies that borrowed government oil as part of an exchange program the past two years. Though they were due to repay the crude this year and next, the three companies received US approval to delay about 5 million barrels in returns until 2024 and 2025, according to government documents seen by Bloomberg.
The repayment of exchange barrels has been a key part of the Energy Department’s strategy to refill the emergency stockpile, which has been drained to the lowest level since the 1980s. While the documents don’t cite the reasons for the delays, the postponements are the latest indication that replenishing the reserve will be a slow and halting process.
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Only one company — Phillips 66 — has completed its repayment so far but, due to a clever accounting move, the transaction didn’t add any barrels to the reserve. The Houston-based fuelmaker instead repaid its loan with government crude it purchased — but had not yet received — from a previous tender, as well as reserve oil originally purchased by Saudi Aramco’s US trading unit, according to the documents. That means the oil it paid back never actually left the emergency stockpile.
The Energy Department’s attempts to directly purchase crude for the reserve have already been hampered by disagreements over price and quality, with the agency canceling two bids to buy a total of 9 million barrels this year. So far, the US had bought only 7.5 million of the 12 million barrels it planned to purchase this year.
“That means we remain vulnerable in case a hurricane disrupts supplies or geopolitical tensions escalate,” Hunter Kornfeind, an oil market analyst at Rapidan Energy Group, said. Kornfeind doesn’t expect the energy department will carry out “mass” purchases and will focus on opportunistic ones.
Phillips 66 declined to comment. Shell, TotalEnergies, Chevron and Aramco didn’t immediately return messages seeking comment. It’s unclear if Phillips 66 booked a gain or a loss from the earlier return of the barrels, which were initially expected to flow back next year.