Strategic oil reserve buying set to support crude demand through 2028
The IEA coordinated a record production of 400 million barrels after disruptions in the Strait of Hormuz sent crude oil prices sharply higher. Brent crude oil rose above $126 per barrel in late April, and U.S. crude oil approached $120 in early March. Replenishing these reserves could create demand for up to 664,000 barrels per day by the third quarter of 2027, according to commodity analytics firm Kpler, which could help offset some of the oversupply expected next year as OPEC+ continues to ease production cuts. This will prevent price drops.
“Restocking of the Strategic Petroleum Reserve (SPR) will lead to a higher price floor in 2027,” said Christopher Haines, head of oil at consultancy Energy Aspects.
Replenishing reserves could create 506,000 barrels per day of additional crude demand in the fourth quarter of 2026, and that demand could rise further next year, said Michelle Brouhard, head of policy and geopolitical risk at Kpler.
WE WILL BE THE FIRST TO START FILLING
The United States, which has extracted 172 million barrels of oil under the IEA program, is expected to begin buying back the oil later this year under swap agreements that require companies to return the borrowed barrels plus additional barrels as a premium. According to Department of Energy data on Monday, US strategic reserves fell by 6.2 million barrels in the week to July 3, falling to 319.5 million, the lowest level since April 1983.
The government expects to receive an average of 1.28 barrels for every barrel released under swap agreements, U.S. Energy Secretary Chris Wright told Reuters at a Reuters Next event in late June. Wright said the returns would help SPR stockpiles rise above 400 million barrels, and Washington is exploring ways to increase stockpiles above 500 million barrels. The United States could replenish reserves sooner than other countries because foreign exchange agreements allow stocks to return to prewar levels without additional government spending, former U.S. Energy Information Administration administrator Jay Hakes told Reuters.
“For other IEA members, the picture is more 2027-weighted and discretionary,” said Naveen Das, senior oil analyst at Kpler.
Analysts expect countries including Japan and South Korea to rebuild their reserves more gradually, with replenishment efforts likely to depend on oil prices and government spending decisions.
ASIA EXPANDS STOCKING
Low oil prices could encourage China to increase stockpiling, creating another source of demand as well as IEA countries rebuilding their reserves, analysts said.
“Historically, when Brent crude oil prices are below the 12-month moving average, China starts buying and filling the SPR,” said Michael Haigh, head of global commodity research at Societe Generale.
Brent front-month futures were trading around $78 a barrel on Thursday, according to LSEG data; That was slightly above the 12-month moving average of about $76.59 per barrel, according to LSEG data.
In addition to replenishing barrels released during the crisis, some countries in Asia dependent on supplies from the Gulf are expanding storage capacity to strengthen energy security in the wake of the energy shock in the Middle East. China is building 11 new strategic oil storage fields, while India plans to more than double its strategic oil reserve capacity with expansion projects in Padur and Chandikhol. The Philippines is also developing a national strategic oil reserve system with support from Japan.
