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US to Sell Strategic Crude Reserve for Cash

US to Sell Strategic Crude Reserve for Cash
US to Sell Strategic Crude Reserve for Cash

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 on Monday night by the White House and top lawmakers from both parties.

The proposed sale, included in a bill posted on the White House website, equates to more than 8% of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast, Bloomberg reported.

Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 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 has raised 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 $2 billion program from 2017 to 2020 to modernize 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 oil analysts and former US energy officials, say using the underground reserve as a piggy bank makes it less effective in meeting its intended purpose, which is to combat a “severe energy disruption.”

The sale comes as countries, including China and India, build their own reserves, buying crude in the market to fill up huge tank facilities. Germany, Japan, South Korea, France, Spain, Italy and other big importers also have their own reserves.

Washington has released crude from the strategic reserve three times during supply emergencies: in 1991 during the Persian Gulf War to liberate Kuwait from Iraq, in 2005 after hurricane Katrina crippled Gulf of Mexico production, and in 2011 after the war in Libya cut supplies.

Between 1996 and 1997, Washington also sold 28 million barrels to reduce the federal deficit.

 

Financialtribune.com