U.S. Mandates Biggest Non-Emergency Strategic Oil Selloff
The budget deal that the U.S. Congress passed and President Donald Trump signed into law last Friday calls for selling 100 million barrels of the Strategic Petroleum Reserve (SPR) by 2027 to help fund the government.
The sale of 100 million barrels of crude oil in the next decade would represent the largest non-emergency sell-off of strategic oil reserves and would equate to some 15 percent of the current stockpiles in the SPR.
The mandate for the SPR sale has drawn criticism because, some experts say, it would blunt the purpose of the strategic reserve to mitigate major global oil supply disruptions or price shocks. Other critics have said that tapping the emergency oil reserve for non-energy needs of the government is short-sighted, and that the SPR should not be used as a “government ATM.”
The Bipartisan Budget Act of 2018 mandates the Secretary of Energy to draw down and sell from the SPR a total of 30 million barrels of crude oil between fiscal years 2022 and 2025; another 35 million barrels during fiscal year 2026; and additional 35 million barrels in fiscal year 2027. In addition, under a budget deal from 2015, the Secretary of Energy is authorized to draw down up to US$350 million worth of crude oil from the SPR in the 2018 fiscal year to use for modernization of the reserve.
The budget deal also reduces the minimum required level in the reserve under which no drawdowns can be made, to 350 million barrels from 450 million barrels.
According to the Congressional Budget Office, the sale of the 100 million barrels from the SPR would generate US$6.36 billion between 2018 and 2027.
As of February 2, 2018, the SPR held a total of 665.1 million barrels of crude oil, while the current storage capacity is 713.5 million barrels, according to the Department of Energy. The average price paid for oil in the Reserve is $29.70 per barrel.
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