The U.S. Strategic Petroleum Reserve (SPR), which predominantly comprises crude oil and is located along the Gulf of Mexico, can legally be released to counter significant disruptions in energy supply. Apart from crude oil test sales, it has been utilised only a handful of times: in 1991 during Operation Desert Storm (17.3 million bbls), in 2005 in the wake of Hurricane Katrina (11 million bbls), in 2011 in response to the Libyan crisis (30.6 million bbls) and in 2022 following Russia's invasion of Ukraine (180 million bbls).

The latest emergency stock drawdown was precipitated by the Persian Gulf crisis, which deprived the global oil market of a significant volume of crude oil. In coordination with the International Energy Agency (IEA), the United States pledged to supply 172 million bbls of crude oil from its emergency stockpiles. While the volume drawn down to date remains well below the maximum available, the U.S. SPR has declined from 415 million bbls at the beginning of February to 304.8 million bbls in the week ending July 31, the lowest level in 43 years, according to the latest EIA's Weekly Petroleum Status Report.

The coordinated move has gone a long way towards calming nervous markets, as the U.S. crude oil benchmark, WTI, fell from its March peak of $119.48/bbl to an early July low of $67.04/bbl before recovering amid the renewed escalation in tensions. The effectiveness of using the SPR is beyond doubt. Looking ahead, an intriguing question is how the U.S. crude oil market will be affected when the depleted stocks are replenished.

The first point to note is that this year's SPR release comes at no cost to U.S. taxpayers, as it is not a cash sale but a structured oil exchange under which companies borrow crude oil and return it later with an additional volume. (The multiplication factor is 1.28.) Second, although detailed plans for replenishing the released SPR barrels have yet to be announced, the U.S. Energy Secretary has hinted at the possibility of refilling the SPR to more than 500 million bbls in the not-too-distant future, although no specific time frame has yet been provided.

Nevertheless, a broad assessment can be made. Assuming the replenishment of 200 million bbls begins in the fourth quarter of 2026, as currently expected by market participants, and continues over two years, nearly 280,000 bpd of crude oil, almost 3% of U.S. domestic consumption, would flow back into the emergency reserve. Naturally, the shorter the replenishment period, the greater the government-induced increase in demand. While outright crude oil prices are influenced by a myriad of factors, once the U.S. government begins taking back the borrowed oil, it should provide relative support for the U.S. crude oil benchmark against its international peers. This would also be reflected in a stronger WTI forward structure, particularly if other IEA members refrain from replenishing their strategic reserves at the same time, as their replenishment plans tend to be more price sensitive and therefore more protracted than those of the United States.