Bill Richardson, U.S. Secretary of Energy, announced today that the U.S. will put into the Strategic Petroleum Reserve (SPR) 28 million barrels of oil produced from federal territory. The crude oil will be accepted by the U.S. in lieu of royalty payments and will be taken at a rate of 100,000 barrels per day. The total daily production of crude oil in the U.S. is 6.37 million bpd. Essentially, Richardson will be removing 1.57 percent of U.S. production from the market, which will force some refiners to find other supplies, assuming the 100,000 bpd are not produced by simply increasing production on federal lands.

The move comes at an opportune time. Demand for crude oil in the U.S. will sink to its annual low during the next few weeks. The U.S. will be acquiring crude oil for the SPR at the lowest price in years, which is the best way to fill the SPR.

And, even though the amount of oil is relatively small, by moving the crude oil into SPR storage, the government is supporting all U.S. producers by mitigating the overall impact of the upcoming slack market to a limited extent. It should at least help prop up crude oil prices during March.

Imports of crude oil are not likely to be increased within the next 6 weeks. However, in the spring and summer months, as demand for gasoline increases, the SPR purchases may result in a slight increase in imports of crude oil similar to the type being put into the SPR.