Does the U.S. still need its Strategic Petroleum Reserve, which today stands at 700 million barrels?
Forty years ago, one of America’s greatest possessions was its oil reserve, a cache of oil used as a safeguard against the energy crunch that the future promised.
Today, not so much.
With the United States producing more oil than ever before, and the dependency on foreign oil diminishing as the worldwide demand for oil drops, many officials question the wisdom of the country having an oil reserve which today is estimated at 700 million barrels.
The question was raised in late October when the U.S. House passed a budget deal to raise funds by selling 58 million barrels of oil from the Strategic Petroleum Reserve over a seven-year period beginning in 2018. The funds from that sale would go into the Treasury general fund to battle the country’s deficit and borrowing limit concerns.
Another $2 billion in reserves would be sold to fund the Energy Security and Infrastructure Modernization Fund, beginning in 2017.
The SPR currently holds approximately 700 million barrels. Its original purpose was to serve as a stockpile after the U.S, suffered due to the Arab oil embargo from 1973 to 1974.
There is a glut of oil on the market today, as OPEC nations refuse to stop pumping and processing oil into petroleum despite the drop in demand and the emergence of the U.S. production. Oil prices have dropped to lows not seen in decades.
But the status of the oil market relies on the decisions made in the Middle East, and with recent terrorist events including the attacks in Paris raise questions about the stability of the world’s oil market.
So, does the U.S. still need a Strategic Petroleum Reserve of 700 million barrels?
The question has two sides: should the U.S. use the oil reserve to pay off debts and fund programs when the price of oil is at its lowest, and how far down should the reserve go in an effort to pay for programs when other forms of revenue cannot be found?
“If this turns into a feeding frenzy and we sell down our entire reserve, that’s where it could become a market issue,’’ said Robert McNally, energy market consultant and president of The Rapidan Group in an interview with CNBC. “We better be sure we’ll be at peace, and I wouldn’t make that bet.”
However, the global head of energy analysis at Oil Price Information Service, Tom Kloza, told CNBC the SPR is “an anachronism” and is irrelevant due to the low cost of oil, the protection the U.S. has by producing its own oil, and the oil available to it by the increased production in Canada.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.