Possible US Budget Fix: Sell Our Strategic Oil

The U.S. economy is awash in fossil fuel production, which coincides with a stalemate over how to stanch the government’s flood of budgetary red ink. It also raises a tantalizing question for a few observers: whether the U.S. should liquidate some of its Strategic Petroleum Reserve and apply the proceeds to help close the deficit.

With a domestic energy boom on the upswing, some energy experts have pushed for the U.S. to empty the emergency stockpile of oil that it’s held since the energy crisis of 1973. The argument has taken on added salience in the face of a budget gap that remains uncomfortably close to $1 trillion, and a lack of political will in Congress to fix the problem by either cutting spending or hiking taxes.

As a cash-strapped government seeks new sources of revenue, the Strategic Petroleum Reserve (SPR) has become a potential cash cow that, for some, is too enticing to ignore.

“It’s an asset, and in this time of budget stringency, it’s an asset that ought to be sold off,” said Philip Verleger, an energy economist who has long advocated the idea of liquidating the SPR. He said the sale should be staggered over the course of several years, so as not to roil oil markets or distort prices.

“We don’t need [the SPR] anymore,” said Verleger, a former Council of Economic Advisers economist under President Gerald Ford. He estimates the U.S. could earn revenue somewhere north of $65 billion if it sold all of its strategic stocks. “Imports are going down, and we don’t need it anymore.”

To be certain, eliminating the SPR—a linchpin of U.S.energy policy for decades and what the Department of Energy calls “a key tool of foreign policy”—is not a decision to be taken lightly. Many analysts argue that there’s a need for the U.S. to maintain a buffer against a turbulent geopolitical environment that can’t be predicted.

Moreover, critics of the idea say, in the grand scheme of a projected 2013 U.S. budget deficit of $845 billion, the proceeds of a potential SPR sale would scarcely put a dent in the money Washington needs.

“It’s a very remote possibility,” said Christian O’Neill, an energy analyst at Bloomberg Industries. “There’s roughly just under 700 million barrels of oil in the SPR. From that perspective, how much are you really going to make a dent in things in terms of the overall security it provides?” he asked.

An additional factor against liquidating the SPR is the current price of oil. With Brent crude and West Texas Intermediate sharply below their former highs of more than $100, it means that at least part of the US oil stocks would be sold at a loss. O’Neill points out that selling into a weak oil market could ultimately cost taxpayers in the long run.

Verleger argues that countries like Canada do not maintain a strategic oil stockpile, yet O’Neill says that comparison is less than accurate.

“The Canadian government is long crude oil production relative to demand, unlike the U.S., [which] consumes more than it produces,” O’Neill said. “If the U.S. were balanced, then you can make that case, but that is not the case today.”

Still, two key developments give some credence to how the world’s largest economy might be able to do without a large store of oil.

Underscoring how the U.S. is now producing fossil fuels hand over virtual fist, oil markets were convulsed by Energy Information Administration data this week that showed U.S. crude stocks rising to their highest level on record at 395.28 million barrels.

Meanwhile, the U.S. trade deficit contracted in February, driven in large part by oil imports tumbling to their weakest level in nearly two decades.

The U.S. has “built stocks of things like helium, metal, copper,” said Verleger, adding that “when you need them you build them, and when you don’t need them you get rid of them.”

CNBC

13 Comments on "Possible US Budget Fix: Sell Our Strategic Oil"

Arthur on Fri, 3rd May 2013 2:54 pm 



Nice opportunity for China to send their surplus dollars back to where they came from. Copper will keep it’s value for decades to come, unlike reserves of fiat money.

But why would the US trade these valuables against paper, it can print itself?

“It also raises a tantalizing question for a few observers: whether the U.S. should liquidate some of its Strategic Petroleum Reserve and apply the proceeds to help close the deficit.”

First see, then believe.

DC on Fri, 3rd May 2013 4:06 pm 



Canada having no strategic reserve of its own has more to do with it Canadians on the whole, being cheap, complacent, and most importantly, Canada does not own or control its own resource, the US and other foreign entities do. If Canada actually owned the oil and gas under its soil, and was not a de-facto energy colony of the US, there would likely be a strategic reserve in Canada.

Since the US debt is owed largely to itself, and is constantly expanding, the US would have to sell its full SR every single year and it wouldn’t make a dent in the colossal US debt levels. Oil, whatever its market price, is stil a valuable commodity, paper fiat debt however damaging it is, is a mathematical fiction, a social construct. Corporate neo-cons are using the ‘budget’ crisis to destroy anything in the public sphere, or any kind of long term planning programs. Since the US loses track of more money every year than the 65b such a sale would generate, one should question the real motives of the people proposing this stupid idea-and who they work for.

Poordogabone on Fri, 3rd May 2013 4:55 pm 



Well it would take about 70 days to repurchase that oil in imports and we would be left with out a cushion. That would surely force the US into a war in case of a major disruption. As if the specter of WWIII was not already omnipresent.

Plantagenet on Fri, 3rd May 2013 5:14 pm 



Wouldn’t it be simpler just to cut Obama’s wasteful spending?

That way we could fix the budget AND keep our strategic oil reserve for a real emergency.

dave thompson on Fri, 3rd May 2013 5:26 pm 



Why does the government borrow money in the first place? Oh yea the federal reserve a private bank forces U.S. to.

Beery on Fri, 3rd May 2013 6:26 pm 



“Wouldn’t it be simpler just to cut Obama’s wasteful spending?”

Did Obama suddenly become Dictator?

Last I heard, budgets had to be passed by the House and Senate.

Bob Owens on Fri, 3rd May 2013 7:27 pm 



The SPR is for an EMERGENCY! Like “We have to get the harvest in or we will starve!” or “A hurricane just destroyed New York City!”. Get the idea? When we NEED it we will be glad we HAVE it!

sheila chambers on Fri, 3rd May 2013 11:49 pm 



Isn’t it the height of stupidity to sell off a crucial finite resource to make more green pieces of paper? The fracking boom will soon go bust as these wells deplete in years instead of decades. We use 19 million barrels of oil a day, fracking produces at most,2 million barrels a day. We have too many people that cannot be sustained so collapse is inevitable because we will not or cannot reduce our numbers intelligently. We are yeast people in a petri dish.

massbytes on Sat, 4th May 2013 1:22 am 



This is about as bad an idea as I have seen lately. And believe me there was some stiff competition. Raising 65 billion against the deficit spending we are seeing is a mere drop in the bucket. And do you really think it would be used to actually reduce any type of government spending?

Dmyers on Sat, 4th May 2013 1:23 am 



“The U.S. economy is awash in fossil fuel production..” the article begins. In other words, “we’ll believe anything.”

Let’s start with that ridiculous fantasy and draw ridiculous conclusions from it. Such as, that selling even this vast fantasy land of our oil could put so much as a tiny dent in the budget deficit.

All good comments above on this subject.

Rusty Baker on Sat, 4th May 2013 1:31 am 



I’m waiting for Arthur to blame this on the Jews.

luap on Sat, 4th May 2013 9:49 am 



Where is Bills end of western world message..its just not the same without it…lets face it we are totally screwed and most people don’t know..don’t care…
Things Will only change right at the end when’s its too late..its mankinds way…Easter Island comes to mind

BillT on Sat, 4th May 2013 11:59 am 



luap … it’s not necessary. You all did a great job of defining it. ^_^