The federal government plans to sell more than 8% of the oil in its strategic reserve, as part of a budget deal reached late Monday by the White House and top lawmakers from both political parties.
According to The Bipartisan Budget Act of 2015, the U.S. will sell 58 million barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025, with the proceeds to be deposited into the general fund of the Treasury.
This is the second time the federal government has raised cash by selling oil from the reserve, created after the oil crisis of 1973-74. The United States may sell also additional barrels to cover a $2 billion program from 2017 to 2020 to modernize the strategic reserve, including building new pipelines.
“Supporters of the sale argue the U.S. doesn’t require such a big emergency reserve as rising domestic production on the back of the shale boom offsets the need for imports,” Bloomberg wrote. “Critics, including oil analysts and former U.S. energy officials, say using the underground reserve as a piggy bank makes it less effective in meeting its intended purpose: combating a ‘severe energy disruption.’ What’s more, the government would be selling at a time when oil is unlikely to have recovered from its slump over the past 18 months.”
The Energy Department, which oversees the reserve, says on average the United States paid about $29.70 a barrel for the oil. But after adjusting for inflation and other items, the average cost rises to $74 a barrel, according to ClearView Energy Partners. On Tuesday, West Texas Intermediate, the U.S. oil benchmark, traded at less than $44 a barrel.
At current prices, the extra sales to fund the modernization of the strategic reserve would be equal to 45 million barrels and bring the draw-down to almost 15% of the total.