Uncle Sam is poised to dip into his emergency supply of oil, not because of a shortage but to help pay the bills.
The two-year budget deal reached late Monday between Congressional leaders and the White House calls for the Strategic Petroleum Reserve, or SPR, to sell 58 million barrels of oil between 2018 and 2025 in order to raise money for the government’s general fund. At current prices that would raise about $2.5 billion.
The deal also calls for the sale of another $2 billion worth of oil to pay for improvements to the SPR, such as its pipelines.
The SPR was created 40 years ago after an oil embargo by Arab nations resulted in gasoline shortages and rationing in the United States.
Since then it has generally only been tapped during emergency shortages, such as those created by the Gulf War in 1991 and Hurricane Katrina in 2005. Several small sales were authorized in 1996 and 1997 as part of a budget bill, but that was limited to oil that needed to be moved because a storage area was at risk of leaking.
Advocates of this sale argue that the SPR currently has excess oil. It was designed to hold the equivalent of 90 days worth of U.S. oil imports. But with record U.S. oil production cutting into imports, the SPR now holds more than 150 days worth of imports, according to the most recent figures from the SPR and Energy Information Agency.
“The sale makes sense. The SPR is an anachronism,” said Tom Kloza, chief oil analyst for the Oil Price Information Service. He said the SPR will still have plenty of oil to cover the nation’s needs in case of a hurricane or other short-term disruption.
And in the case of a more severe disruption, say due to a war in the Middle East, Kloza said that more U.S. oil production could come online quickly.
“There’s quite a few drilled but uncompleted oil wells out there. There’s hundreds of thousands of barrels a day of crude just waiting to be tapped,” he said.
The government estimates that it paid an average of $29.70 a barrel for the oil that’s now in the SPR. But the true cost of the oil in the SPR is closer to $74 a barrel when adjusted for inflation, according to testimony to Congress last month by Kevin Book, managing director of Clearview Energy Partners. That is well above the current market price of about $43 a barrel.
Correction: An earlier version of this article incorrectly reported the year of Hurricane Katrina.