White House Chief of Staff Bill Daley appeared on the March 6, 2011, edition of “Meet the Press.” One of the topics discussed was the current spike in crude oil prices. He was asked if the administration was considering using some of the strategic petroleum reserve in an effort to arrest the rise in prices. Daley replied that it was being considered: “We’re looking at the options.”
The strategic petroleum reserve consists of crude oil that was purchased by the United States government and placed into storage in salt caverns in the Texas / Louisiana area. While the authorized level is 1 billion barrels, the reserve today consists of only 726.5 million barrels, Just fewer than 300 million barrels are “sweet” crude while the remainder is “sour” crude. “Sweet” crude oil is low in sulfur and less polluting.
The U.S. Strategic Petroleum Reserve was created by an act of Congress after the oil embargo and energy crisis in 1973-74. The average price paid for oil in the reserve is $29.76 per barrel. A barrel of oil has 42 gallons. The reserve currently does not have storage for any additional crude. Planning is underway to add sites that will allow the reserve to be increased to the 1 billion barrel statutory limit.
The reserve reached its current total on Dec. 27, 2009. Between 1985 and 2008, a number of sales from the reserve and exchanges between petroleum sources have occurred. In 1990 and 1991, Operations Desert Shield and Desert Storm required sales from the reserve. In 1996, 23 million barrels of oil from the reserve were sold to reduce the federal deficit. The last sale from the reserve was after Hurricane Katrina in September 2005.
The exchanges were, in effect, loans of oil to offset disruptions in oil supplies. Such disruptions included ship channel closings and the effects of hurricanes in the Gulf. They are repaid in kind, with interest being paid as additional barrels of crude — “premium barrels.”
The Energy Information Administration reports that the United States imported an average of 8.6 million barrels of crude oil weekly during the weeks of Jan. 21 to Feb. 25, 2011. The reserve has at least 84 weeks of supply available at this rate of use.
The reserve could be sold but regulations around such sales may require a presidential declaration of an emergency. Without such a declaration, sales cannot be below 90 percent of market value, offering little relief to spiking prices, though a revenue windfall for the government. A sale of 200 million barrels would bring the Treasury $20 billion in revenues.
Sales from the reserve have been rare. It remains to be seen if the Obama administration will use it to slow the increase of energy prices in the United States or, perhaps, to pay down the federal deficit.