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U.S. To Sell First 8 Million Barrels From Strategic Reserves

Oil storage

Two weeks ago we previewed that the U.S. Department of Energy could begin to sell off some of its strategic petroleum reserve (SPR) as soon as January, the beginning of a multi-year process to shrink the nation’s stockpile of oil. Congress has authorized DOE to sell off $375.4 million worth of oil in its recent budget resolution. The DOE said that such a sale could be held in January 2017.

(Click to enlarge)

Part of the motivation to sell crude is to finance upkeep for the SPR itself. The reserves are held in salt caverns in Louisiana and Texas, setup decades ago in the aftermath of the Arab Oil Embargo in 1973. The SPR system can hold more than 700 million barrels of oil, the largest strategic stockpile in the world. The idea is that the SPR holds 90 days’ worth of oil supplies, which could be released in the event of a global outage. A release has only occurred a handful of times, such as the Persian Gulf War, Hurricane Katrina and the Arab Spring.

Some of the storage systems are rusting and corroding after decades of use. In September, the DOE issued a report to Congress, which came to a dire conclusion about the condition of the reserve. “This equipment today is near, at, or beyond the end of its design life,” the report said. The sale "will allow the Department to take necessary steps to increase the integrity and extend the life” of the reserve, a DOE spokesperson said in December after the budget resolution was passed. Related: A Rosy Future For U.S. LNG

In the past, the SPR has been viewed as a cornerstone of U.S. energy security policy. As long as the U.S. had 3 months’ worth of supply, it could weather unexpected disruptions. The International Energy Agency was setup in the 1970s as well, and participating members – in addition to the U.S., the group includes Europe, Japan, Korea, Australia and New Zealand – also have pledged to hold a 90-day supply. However, U.S. policymakers no longer view the SPR is all that important. Even the more hawkish members of Congress have been lulled into a sense of security from the surge in U.S. oil production and the resulting crash in oil prices. The world is awash in oil, so why does the U.S. need to stockpile such a massive volume of oil at great expense? The ostensible reason of selling off oil from the SPR is to finance its maintenance to ensure its existence over the long-term, but if the Congress still truly believed in the importance of the SPR, they would have found funding elsewhere instead of reducing the stockpile.

In any event, the previously previewed sale is about to take place, and according to an announcement by the DOE, the U.S. will offer to sell some 8 million barrels from the petroleum reserve. According to the notice of sale, the Energy Department is accepting bids on sweet crude oil until 2pm CT Jan. 17. The contracts will then awarded by the end of January, with early deliveries expected in February and other deliveries in March, April.

The sale includes:

o Up to 3m bbl from Bryan Mound
o Up to 3m bbl from Big Hill
o Up to 2m bbl from West Hackberry

It is unclear yet if the upcoming sale will pressure oil prices, or whether China - which unlike the U.S. has been aggressively stockpiling oil for its own strategic petroleum reserve over the past year - will be the ultimate buyer.

By Zerohedge

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Leave a comment
  • Ahmad on January 09 2017 said:
    So it's the use that's keeping the price low while Saudi a gets the blame lol
  • EH on January 09 2017 said:
    Looks like the USA energy consuming taxpayer is on the cuff for another trillion or so dollars now to RE-SUPPLY IT with the next round of $80+ a barrel oil. Folks, this is the true definition of the shell game @ our Grand children's exspense. We just did this under GW&Co,, We haven't even begun to see that purchase in the form of taxation yet. How is it the WORKING Class stiff in this Country has to struggle along until the FARE equal Economy picks up,,,but when the oil cartel needs a Boost,, it is through blood bath War's or Government investment like the National Strategic Reserve,,, are WE,, YOU AND I CHUMPS?
  • JACK MA on January 09 2017 said:
    The last 8 million attempts to flood the market and collapse Russia. The left wing Neocon war harks never give up. One must admire their perseverance even though it is both futile in and vein. Russia wins the ME and the ever lasting marriage of Russia and China pretty much seals the fate of the doomed dollar. IMHO
  • Jonathan Pulliam on January 10 2017 said:
    Why didn't the highly degreed super-educated Obama administration super-geniuses sell when oil was at US$ 140.00 per bbl., or US$ 120.00, or even a hundred lousy bucks a barrel, Lord knows the price hovered around US$70.00 per bbl. for the longest time, so no one in our Washington D.C. junior bureau-creature JV team would have needed speedy reflexes to think to sell long BEFORE an Iran deal was inked, or today's "cap it at $55.00" hedging contracts were inked. Ever dang thing Obama ever touched turned to hog wallow.
  • Jack Ma on January 10 2017 said:
    JP

    Obama was just a expendable Soros puppet and his orders were to destroy the USA from the inside. By adding 9 trillion debt he did his part. He should be tried for high treason, but then again so should Clinton, Bush, Bush, Cheney, on and on. This is why they did not sell at 140. IMHO

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