The U.S. is doing something with oil it has only done once before

October 27, 2015, 4:47 PM UTC
High Oil Prices Continue To Drive Gas Prices Steadily Upwards
CULVER CITY, CA - APRIL 25: Oil rigs extract petroleum as the price of crude oil rises to nearly $120 per barrel, prompting oil companies to reopen numerous wells across the nation that were considered tapped out and unprofitable decades ago when oil sold for one-fifth the price or less, on April 25, 2008 in the Los Angeles area community of Culver City, California. Many of the old unprofitable wells, known as "stripper wells", are located in urban areas where home owners are often outraged by the noise, smell, and possible environmental hazards associated with living so close to renewed oil drilling. Since homeowners usually do not own the mineral rights under their land, oil firms can drill at an angle to go under homes regardless of the desires of residents. Using expensive new technology and drilling techniques, California producers have reversed a long decline of about 5 percent annually with an increased crude flow of about 2 1/2 million barrels in 2007 for the first time in years. (Photo by David McNew/Getty Images)
Photograph by David McNew — Getty Images

The United States keeps almost 700 million barrels of oil in strategic petroleum reserves (SPRs)—secret, vast salt caverns located along the Gulf of Mexico—as a national security precaution.

Last night, the White House and bipartisan lawmakers agreed to sell off nearly 9% of those emergency stocks from 2018 to 2025 in a budget deal—the proceeds of which will be deposited into the Treasury’s general funds, Bloomberg reported. That cash will pay for the additional spending laid out in the tentative budget deal, which will lift mandatory spending caps on defense and domestic programs.

The petroleum reserves are supposed to be an insurance policy against market shocks resulting from supply disruptions, such as the 1973 oil embargo that contributed to a national economic downturn and led to the creation of SPRs.

The United States has only used the reserves as a piggy bank once before, in 1996-1997, when 28 million barrels were sold off to diminish the federal deficit. The reserves have been used to alleviate flagging supply only three times since their creation, such as in 2005 in the wake of Hurricane Katrina, and in 2011, when political tumult in the Middle East cut supplies.

This July, the idea of selling off reserve oil began appearing as an easy cash course in proposed legislation such as the Senate transportation bill and a House of Representatives medical-research bill. In a speech in June, Energy Secretary Ernest Moniz said that raiding the reserves would be “a very slippery slope when our energy security needs are involved, albeit evolving.” Lawmakers including Republican Senator from Alaska Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee, have also cautioned strongly against using the reserves like an ATM. And some industry analysts and economists say that the timing is particularly poor for a massive sell-off, since oil prices remain depressed.

But lawmakers proposing the sell-off say that the strategic petroleum reserves are outdated and a vestige of Cold War policy. While members of the International Energy Agency (including the United States) are required to have at least 90 days’ worth of net oil imports on hand for emergencies, the U.S. reserves covered about 138 days as of July, according to The Wall Street Journal. With a domestic oil boom, lawmakers like Senate Environment and Public Works Chairman James Inhofe—who was a lead sponsor of the Senate transportation bill—said replenishing the reserves later wouldn’t be a problem.

The arguing is far from over: the budget deal must now advance to a floor vote in the House of Representatives, and then be approved by the Senate.