US To Sell 10 Million Barrels Of Oil From Strategic Petroleum Reserve In February

Tyler Durden's picture

Following a January announcement according to which the DOE planned to sell 8 million barrels of oil from the Strategic Petroleum Reserve, and which some speculated was the reason for the big buildup in crude inventories in the past several weeks, today the U.S. Energy Department said it will sell 10 million barrels of oil from the government's emergency crude reserve in late February. 

This represents the second sale of oil from the emergency stash this year: according to Reuters, last month Shell bought 6.2 million barrels from the reserve and Phillips 66 bought 200,000 barrels, which was below the 8 million projected for sale. As explained below, that sale was partially held to fund a modernization of the SPR itself. More sales are expected be held in coming years to fund up to $2 billion for the revamp.

According to the notice of sale, the entire 10 million barrels will be sour crude drawn from three sites—Bryan Mound and Big Hill in Texas, and West Hackberry in Louisiana. Revenues from the sale will be deposited in the general fund of the U.S. Treasury to carry out the National Institutes of Health innovation projects as designated in the 21st Century Cures Act.

The sale from the SPR is required by a law passed last December to help raise funds for medical research. The law has mandated sales of 25 million barrels from the SPR over three years, starting with the sale of 10 million barrels this year.

The US oil reserve is held in a series of heavily guarded underground salt caverns along the coast in Texas and Louisiana and currently holds about 690 million barrels of mostly sour oil, a type containing high sulfur that many U.S. refineries can process. 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.

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.

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chunga's picture

This seems pretty strange.

knukles's picture

It's the Famous "Gordon Brown Trade".

Raffie's picture

Not the Gordon's Fishermen?

demi urge's picture

That'll help the glut.

DeadFred's picture

"Not the Gordon's Fishermen?"

You forget it's Gortons now (and always has been it seems) and besides that they were getting worried it was going to rot down there in those salt caverns. It been a round for millions of years but could have spoiled any day now. Liquified dinosaurs doesn't last forever.

Escrava Isaura's picture

chunga: This seems pretty strange.

Because you didn’t read the article.

Some of the storage systems are RUSTING AND CORRODING after decades of use. In September, the DOE 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 SALE "will allow the Department to take necessary steps to increase the integrity and extend the life” of the reserve.

“A mathematician thinks in numbers, a lawyer in laws, a researcher in reading, and an idiot thinks in words.” — Misquoting Nassim Taleb

 

chunga's picture

Ok, I confess. I didn't read it.

That makes me feel better knowing the strategic reserve tanks are falling apart.

Escrava Isaura's picture

Strategic reserve Falling apart? Wait when the oil fields and all the fracking are abandoned in the next 10/15 years.

 

BandGap's picture

I am not sure either of you read it. They are selling to cover expenses, and some of those include a caveat for medical related expenses.

Salt is very corrosive, cloride ion attacks iron very aggressively. The corrosion has to be for the above ground facilities.

High sulfur oil is a bitch, very hard to use as a stock for plastics since the sulfur would poison most catalysts. They would have to keep this "sour oil" segragated.

BTW, this is a shit ton of oil.

 

demi urge's picture

where are they getting all this heavy sour from anyway?  We don't produce much of it domestically.

2_legs_bahhhhhd's picture

https://en.m.wikipedia.org/wiki/Sour_crude_oil

The major producers of sour crude oil include:

North America: Alberta (Canada), United States' portion of the Gulf of Mexico, Alaska and Mexico.
South America: Venezuela, Colombia, and Ecuador.
Middle East: Saudi Arabia, Iraq, Kuwait, Iran, Syria, and Egypt.[1]

2_legs_bahhhhhd's picture

Interesting that it states the purpose of the reserve is to store 90 days of consumption. According the eia.gov the US uses 19mil b/d ...700mil barrels equals 36 days supply. At 52$ it's value is 36 billion....pfffft. Net revenues for Gollum sax in 2015 was 34 billion

http://www.eia.gov/tools/faqs/faq.cfm?id=33&t=6

http://seekingalpha.com/article/3821986-goldman-sachs-group-gs-q4-2015-r...

I'm no maffalete , but 700 mil barrels of oil at 52$/b equals .00172% of the 20 tril national debt. Barely a drop in the bucket..hah

Lumberjack's picture

Something else is up...

Citizen_x's picture

 

Maybe so...  High Sulfur(sour) crude is nothing new.  Gulf area refineries spent many millions in process upgrades to refine sour crude since the early 90's.  Sour, trades at a discount to WTI; the benchmark for finished products pricing(RBOB, Distillates, C3).  The oil business harbors some of the most ruthless individuals on this earth.  BP's gulf spill in 2010, just another example.

ejmoosa's picture

Corroding storage tanks and salt caverns?

No one saw this coming?

 

Can I get a reserch grant to see why this happened?  I promise I only need a few million and I will get you an answer in 3-4 years.

Ballin D's picture

Perhaps you didn't notice but we have a privately successful leader in the Whitehouse now.

AnngeloJamaica's picture

Let me explain it to you.

"Revenues from the sale will be deposited in the general fund of the U.S. Treasury"

It is going to be placed into the ESF, the Exchange stabalization Fund.

Now google that one and you will get educated.  1934 and no oversight.

Merry Christmas.  Here Let me help you https://youtu.be/fl9i0zXDVGs

No.Fifth.Turning's picture

The USA is just like me! Buy high and sell low!!!

scv's picture

power lines generate electricity, you are using free stuff from teh air

Countrybunkererd's picture

That might be true near certain parts of radioactive japan.  i better add the /s.

SILVERGEDDON's picture

Fonestar has risen from the dead again. 

" Teh " dead giveaway. 

More Shitcoin Precious rantings to come shorrtly, methinks.  

AnngeloJamaica's picture

Power lines do not GENERATE electricity.  They are used as a means of transporting electricity not producing it.

skbull44's picture

Increasing production...falling demand...perfect time to sell!

fbazzrea's picture

if lower prices fit into your international energy corps'., i.e., Exxon, strategy for consumating alliances with foreign producers in times of low revenues.

wisehiney's picture

Highly deflationary.

bshirley1968's picture

This is a clear indication of the economic collapse in progress.

Why would you EVER sell this?  Because you needed the money?  Hell, you have the printing press.  Print some paper to pay whatever bills.  Save the oil....it's real......it has real value......anywhere......anytime.

Demand is down around the globe.  Not only are we selling the most precious resource on the planet, we are selling it while markets are cheap. 

This represents "real economy" and not the paper debt economy.  It only takes .001% of real economy to fund some phony economy.  So this $500,000,000.00 sale of real economy is worth $5,000,000,000.00 in the matrix economy.

SirBarksAlot's picture

I can't believe they're selling it to invest in medical research.  WTF??

conspicio's picture

So all the reasons the left supported these in the past are not present (no pricing pressure, no unrest, no supply restriction, etc) so I am guessing this will be called out as A BAD THING because Trump.

If you want to learn more, good link here: https://www.energy.gov/fe/office-petroleum-reserves-reports

Son of Captain Nemo's picture

Certainly looks like a made in America "Midnight Cowboy" moment for Rex Tillerson?...

HARD UP with a "HARD ON"!!!!

cowdiddly's picture

Fill it up with oil at $100 bbl and sell it later for $50bbl

Brilliant, these guys need to be running a hedge fund. Why, we might get that 20trillion payed off yet.

bcroz's picture

Maybe you should read the fine print. The ave cost per bbl is $29.76. Maybe time to sell before we head back to sub $50.

whatamaroon's picture

What does Rick Perry have to say about this?

The Saint's picture
The Saint (not verified) whatamaroon Feb 8, 2017 6:24 PM

They are shipping it all over to Rick's ranch as we speak.

 

vato poco's picture

a better question would be WHO is selling it? 

forget "the US Government"...that's just the mask. is it Perry/Trump making the sale, or is it some faceless globalist bureaucrat at the DOE, building and/or expanding his bureaucratic fiefdom? I'm guessing it's the DOE bureaucracy pulling the trigger. Trump's attention is elsewhere at the moment, Perry is still probably just getting moved into his new office.

actually, a better question is, 'where's the money going?' is it into the "pay down the national debt fund" (LOL), or into DOE slush funds/climate change 'research' funds etc etc labeled something else, never to be spoken of to Trump/Perry unless under oath?

YO! Big Don! Perry! Bannon! there's half a billion bucks of OUR money floating around out there! did you guys sign off on this? cynical ol' vato says 70% chance you didn't....

#DrainThe Swamp        #BowTiePizzagate

Sudden Debt's picture

Open all the oil fields and just sell it all.

More jobs, less expensive Arabic imports and less money to the terrorists.

sinbad2's picture

What you don't seem to understand is, the Arabs can sell oil for less than it costs the US to get it out of the ground.

All American oil companies have been losing money, ever since the US crashed oil prices.

Arnold's picture

Saudi crashed crude price for market share.

FIFY.

Not working out well for anybody.

$80 US delivered

$30 Saudi delivered

$10 Iran @port  per bbl.

 

Break evens, no debt or development costs.

moorewasthebestbond's picture

Rotate your gas and diesel. Not exactly a huge story here.

moonmac's picture

Today’s kids don’t even want a Drivers License. They better sell a whole lot more unless they want to be stuck with it.

Dragon HAwk's picture

Ah one nuke would burn it all up anyway, might as well sell it while you still can  /s

blindman's picture

this drops here.
.
How USA is encircling CHINA & INDIA WITH SECRET WEAPONS #Mind Blow
https://www.youtube.com/watch?v=56LROG8bLlA

Tipsy's picture

Buy high, sell low.  It's the government way.

blindman's picture

Professor Irwin Corey at the Cutting Room NYC
https://www.youtube.com/watch?v=MxtN0xxzfsw

NoWayJose's picture

Couldn't wait for July when we have $3.00 a gallon gas?

blindman's picture

Bugs Bunny Hillbilly Hare
https://www.youtube.com/watch?v=JQ8n-7XEMmg
.
there is one like this that is funnier.
can't find it but ...
.
Get Prepped for Global Systemic Collapse New 2017- Gerald Celente Latest Updates
https://www.youtube.com/watch?v=fywLrsOG-5Y
.
https://video.search.yahoo.com/yhs/search?fr=yhs-avast-brwsr001&hsimp=yh...

There's picture

So sad. All this ZH wise crack posting and NO ONE thought to ask what Shell and P66 are going to do with 6.4 million gallons and what's worse... what did they pay for it.

This is another example of a Republican Administration not even knowing what day it is when running The Government.

OccamsCrazor's picture

hey dickface. the decision to do this was from Obama and his leftwing whackjob demoncraps.