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Page added on January 11, 2017

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US To Sell 8 Million Barrels Of Oil From The Strategic Petroleum Reserve

Public Policy

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.


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.

In the past, the SPR has been viewed as a cornerstone of US 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 US 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:

  • Up to 3m bbl from Bryan Mound
  • Up to 3m bbl from Big Hill
  • 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 US has been aggressively stockpiling oil for its own strategic petroleum reserve over the past year – will be the ultimate buyer.


11 Comments on "US To Sell 8 Million Barrels Of Oil From The Strategic Petroleum Reserve"

  1. Go Speed Racer on Wed, 11th Jan 2017 1:46 pm 

    Hooray! When we run out of oil,
    we still have an extra 90 days,
    before we run out of oil!

  2. Keith McClary on Wed, 11th Jan 2017 2:26 pm 

    How much did they pay for that $375.4 million worth of oil?

  3. rockman on Wed, 11th Jan 2017 5:13 pm 

    Keith – “The Energy Department, which oversees the reserve, says on average the U.S. 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, a Washington-based energy research firm.” Not sure if those “other items” include maintence and overhead.

    So the US is going to sell SPR oil at a net loss in a depressed market to raise $375 million. Oil that one day it might have to buy back at a higher price. Or as an alternative perhaps we might just increase borrowing above the $443 BILLION the govt plans to cover the 2017 deficit. IOW increase the sale of those US bonds by 0.085%.

    Oh, makes sense to me: while borrowing $443,000,000,000 makes a lot of sense but borrowing $443,375,000,000? That’s crazy talk! OTOH the Air Force can buy just 1,759 F-35’s instead of the 1,763 it scheduled to receive and use that $400 million to fix the SPR.

    Just a matter of priorities I suppose. LOL.

  4. Nony on Wed, 11th Jan 2017 5:28 pm 

    Sell it all and shut down SPR.

  5. makati1 on Wed, 11th Jan 2017 5:54 pm 

    “US To Sell 8 Million Barrels Of Oil From The Strategic Petroleum Reserve”

    That amounts to a gnat on an elephant’s ass. lol

    Less than one day’s U$ production. Not even a blip on the world oil radar. But the oily market boys will use it for all kinds of excuses.

  6. GregT on Wed, 11th Jan 2017 7:24 pm 

    “Some of the storage systems are rusting and corroding after decades of use.”

    All good things must come to an end. Too bad those storage systems weren’t renewable. They would have lasted forever.

  7. DMyers on Wed, 11th Jan 2017 9:29 pm 

    They are renewable, GregT. You take the granules of corrosion. Pour honey and molasses over them, let that set for 100 years, and a solid barrier will be reestablished. Be patient, mon.

    Since the USA has achieved energy independence, it is only fitting that we should express our newly earned confidence by flushing reserves. We’re online. We have a direct tap to the source. There’s plenty more where that came from.

    Nony’s right. Sell it all. We’re home, free. We frack, and we frack big. Insert card, and it’s there. Anyone out there stuck in the Carter era of oil scarcity needs to realize that we now have 100,…200, …do I hear 300? 300!! We have three hundred years of oil. So, let’s talk about the need for an oil reserve in about 250 years.

  8. Boat on Wed, 11th Jan 2017 11:09 pm 


    Or just cancel 1 F-35.

  9. GregT on Wed, 11th Jan 2017 11:42 pm 

    “Or just cancel 1 F-35.”

    No need to cancel anything Boat, we’re in an oil glut. We should just keep amassing debt like there’s no tomorrow, especially when interest rates are so low. 🙂

  10. rockman on Thu, 12th Jan 2017 12:08 pm 

    “Some of the storage systems are rusting and corroding after decades of use.” Salt does not rust. And neither does steel pipe coated with oil. LOL. But there have been some minor maintenance problems.

    And obviously frac’ng shales won’t help solve the problems associated with short term (weeks…months) supply disruptions the SPR was built to directly deal with. IOW if the US loses 3 mm bopd in a matter of days or weeks for whatever reason waiting years for new shale production to replace that loss is not a safeguard.

  11. rockman on Thu, 12th Jan 2017 12:18 pm 

    “Or just cancel 1 F-35.” Nope…need at least 4 cut. Looked it up: depending on the version they are running between $70 and $120 million each. The critical question: can the Air Force get by with 1,759 instead of 1,763?

    Which tells you that any of the reasons given for the sale are 100% bullshit. In one form or another monies for any repairs are readily available without selling the oil.

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