The US has become the world's last lifesaver by selling large amounts of strategic oil reserves (SPR) to prevent further soaring prices in the energy market.

However, the US government cannot rely on these reserves forever because it is limited, but it has to be used to cope with potentially unlimited liquidity shortages. More worryingly, the US is draining its reserves much faster than it seems.

This is a serious problem. The International Energy Agency warned earlier this week that "global oil supply may struggle to keep pace with demand next year." SPR may be the last buffer used to curb oil prices and global inflation later this year and 2023. How Federal Reserve Chairman Powell and other central banks around the world deal with interest rates depends largely on the development of the energy market.

To understand the limitations of SPR, we must have an in-depth understanding of its own mechanism, as well as the internal operation of the American oil refining industry. In the past year, the White House has sold nearly 115 million barrels of oil from its reservesSPR releases have soared to a record high of nearly 1 million barrels a day since mid-May. At the current rate, the US sells more oil reserves than most medium-sized OPEC countries such as Algeria or Angola produce.

A year ago, four storage sites in Texas and Louisiana had strategic reserves of 621 million barrels of oil. But as shown in the picture above,If the US government insists on releasing SPR at the current rate, oil reserves will shrink to a 40-year low of 358 million barrels by the end of October, releasing previously agreed amounts.

The problem is that the current oil market seems unbearable to stop the impact of SPR.Canceling the extra supply would mean a rapid depletion of commercial inventories, putting upward pressure on oil prices.

In theory, the remaining SPR inventory after October could still allow the White House to sell more crude oil in November and December and next year. But there is an important problem: not all the crude oil released is of the same grade, and the rest are far less useful than those released now.

In a broad sense, SPR contains two kinds of crude oil: heavy crude oil and light crude oil. In general, US refineries prefer heavy crude, which is denser and contains more sulfur, and can be easily processed into gasoline and other products through its highly sophisticated plants.

The heavy crude oil stored by the US government matches the type of crude oil processed by its domestic refineries. For heavy crude oil in SPR, the API degree used to measure density is 31.9 and the sulfur content is 1.44%, which is consistent with the average crude oil processed by US refineries in the past five years, which has an API degree of 32.6 and a sulfur content of 1.34%. In contrast, the light crude oil in SPR has a much lower density, with an API of 35.8 and a much lower sulfur content of 0.4 per cent. Heavy crude oil is a type of crude oil mined by Russia, most Middle Eastern countries and Venezuela.

For this reason, the White House gives priority to selling heavy crude oil to satisfy refiners' appetite for their favorite crude oil. According to the analysis based on government dataIn the past year, 85 per cent of the oil sold by SPR was heavy crude.Considering that oil refining is one of the biggest bottlenecks in the oil market, it is very important to meet the first choice of American refiners. Marathon Oil and Valero Energy, the two largest companies in the United States, have been big buyers of SPR auctions for the past six months, helping the industry profit from record refining margins.

As the White House sells large amounts of heavy crude to US refineries, the amount of heavy crude in US SPR has been greatly reduced and will decline further in the next four months. OilX, a well-known oil data analysis company, estimates that by the end of October, there will be only 179 million barrels of heavy crude in SPR. In other words, the United States is likely to sell about 1.8 to 190 million barrels of heavy crude from its reserves between June 2021 and October 2022. Obviously,The US government no longer has enough inventory to repeat this practice.

Although the remaining light crude oil in SPR still leaves some means for the White House to deal with the oil price crisis, it is not as effective as heavy crude oil. In the recent SPR tender, the government has begun to provide more light crude oil. Whatever the refinery's preferences, some is better than none. However, with the heavy crude oil running out, the world can no longer rely on the strategic reserves of the United States to control oil prices.

With that in mind, US President Joe Biden's visit to Saudi Arabia next month is all the more meaningful because Saudi Arabia and its neighbour the United Arab Emirates extract heavy crude oil.