WASHINGTON • The US plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a Budget deal reached by the White House and top lawmakers from both parties.
The proposed sale, included in a Bill posted on the White House website, works out to more than 8 per cent of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast.
Sales are due to start in 2018 at an annual rate of five million barrels, rising to 10 million by 2023 and totalling 58 million barrels by the end of the period. The proceeds will be "deposited into the general fund of the Treasury", according to the Bill.
The sale is the second time the US is raising cash from the reserve, created as a counter-balance to the power of Arab producers after the first oil crisis of 1973-74. The US may also sell additional barrels to cover a US$2 billion (S$2.8 billion) programme from 2017 to 2020 to modernise the strategic reserve, including building new pipelines.
Supporters of the sale argue the US does not require such a big emergency reserve as rising domestic production on the back of the shale boom offsets the need for imports.
Critics, including analysts and former US energy officials, say using the reserve as a piggy bank makes it less effective in meeting its intended purpose: combating a "severe energy disruption". What is 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 US paid about US$29.70 a barrel for the oil. But after adjusting for inflation and other items, the average cost rises to US$74 a barrel, according to ClearView Energy Partners, a Washington-based energy research firm.
On Tuesday, West Texas Intermediate, the US oil benchmark, traded at less than US$44 a barrel.
At current prices, the extra sales to fund the modernisation of the strategic reserve would be equal to 45 million barrels and bring the drawdown to almost 15 per cent of the current total.
The sale comes as countries, including China and India, build their reserves, buying crude to fill huge tank facilities. Germany, Japan, South Korea, France, Spain, Italy and other big importers also have their own reserves.