President Donald Trump’s plan to sell off half of America’s oil reserves sent oil prices lower Tuesday, as investors fear a future glut of the commodity on the market. The proposal could not have come at a worse time for Organization of the Petroleum Exporting Countries (OPEC). The cartel and its allies are trying to extend output cuts to tighten the market.
The price for the benchmark Brent crude slid to $53.66 per barrel in morning trading, after rising the previous four trading sessions.
The White House plan would sell half of the nation’s 688.1 million-barrel oil stockpile from 2018 to 2027 with the intention of raising $16.5 billion and helping balance the budget.
Trump’s proposal has refocused investors on the America’s Strategic Petroleum Reserve. The SPR is the world’s largest supply of emergency crude oil, according to Energy.gov. Oil is stored in massive salt caverns along the coast of the Gulf of Mexico. Salt domes are inexpensive and a secure means of petroleum storage. The reserve operates four storage facilities in underground salt domes of the Gulf Coast, two in Louisiana and two in Texas.
Any decision to draw down crude oil from the SPR is made by the president. The SPR’s massive capacity helps to deter oil import interruptions.
The SPR has been used under these circumstances three times, most recently in June 2011 when President Obama authorized a sale of 30 million barrels of crude oil to offset disruptions in supply because of Middle East turmoil.
A strategic petroleum reserve has been under consideration in the United States since at least World War II. President Eisenhower suggested an oil reserve after the 1956 Suez Crisis. The event that prompted the creation of the SPR was the 1973–74 oil embargo, which followed the Yom Kippur War. The cutoff of oil to the United States from the Middle East was a shock to the U.S. economy. In the embargo’s aftermath, the nation established the SPR.
Some oil industry experts believe the SPR is obsolete because of the surge in domestic production that’s been spurred by exploration of shale oil over the past decade, as well as the reduction in U.S. imports of crude oil.
The Strategic Petroleum Reserve
The Strategic Petroleum Reserve is a U.S. government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts that store emergency supplies of crude oil owned by the United States.
Current Storage Design Capacity: 713.5 million barrels
Current Inventory: See the most recent inventory report.
Current Days of Import Protection in the SPR: The SPR holds the equivalent of 149 days of import protection (based on 2015 net petroleum imports).
Average Price Paid for Oil in the Reserve: $29.70 per barrel
Investment to Date: About $27.8 billion ($7 billion for facilities based on replacement value; $20.8 billion for crude oil based on accounting value).
Drawdown Capability: Maximum nominal drawdown capability is 4.4 million barrels per day. Time for oil to enter U.S. market is 13 days from presidential decision.
Highest Inventory: The SPR was filled to its 727 million barrel design capacity on December 27, 2009; the inventory of 726.6 million barrels was the highest ever held in the SPR.
Previous Inventory Milestones
- 2008: Prior to Hurricane Gustav coming ashore on September 1, 2008, the SPR had reached 707.21 million barrels, the highest level ever held up until that date. A series of emergency exchanges conducted after Hurricane Gustav, followed shortly thereafter by Hurricane Ike, reduced the level by 5.4 million barrels.
- 2005: Prior to the 2008 hurricane releases, the former record had been reached in late August 2005, just days before Hurricane Katrina hit the Gulf Coast. Hurricane Katrina emergency releases of both crude oil sales and exchanges (loans) totaled 20.8 million barrels.