U.S. oil reserve nears critical levels as executives debate safety limits

The oil market faces growing uncertainty as U.S. shale executives struggle to predict when the Strategic Petroleum Reserve (SPR) will reach its minimum operational level. The SPR, now at its lowest level since 1982 with about 284 million barrels, is expected to drop further to 243 million barrels once the Trump administration completes its releases under a March agreement with the International Energy Agency.

The ongoing Iran war, now in its eighth month, has led to a significant drawdown of global oil inventories, with Saudi Aramco CEO Amin Nasser warning that over 1 billion barrels have been withdrawn worldwide. The fragility of Persian Gulf oil exports, compounded by renewed Iranian attacks on shipping, suggests inventories will keep depleting, risking a sharp rise in crude prices once reserves hit their so-called tank bottoms.

A recent Dallas Fed survey of oil executives revealed deep divisions over the SPR’s minimum safe level. While 31% believe it ranges from 100 million to 150 million barrels, others estimate it as low as 50 million or as high as 300 million. The Energy Department insists at least 70 million barrels must remain to prevent structural damage to the salt caverns storing the oil.

Experts offer conflicting views on the SPR’s practical limits. Amos Hochstein, a senior energy advisor to President Joe Biden, warns that dropping below 300 million barrels risks damage, while Rapidan Energy suggests a “soft-ish floor” around 170 million. Siddharth Misra, a Texas A&M professor, argues the structural floor is 70 million barrels, but the practical limit is closer to 250 million, cautioning that the SPR’s ability to act as an economic buffer is rapidly declining.