WASHINGTON — The Department of Energy is planning to buy up to 5 million barrels of oil to replenish the Strategic Petroleum Reserve after a test sale last year.
The planned purchase of sweet crude between June 1 and July 31 is required by federal laws forcing the Department of Energy to buy back petroleum products within one year, using the proceeds from a test sale.
In this case, the recent collapse in crude prices means the government is set to make money on the two transactions — effectively buying low now after selling high last year.
During the March 2014 test sale, the government sold 5 million barrels of oil to five companies — with the crude delivered in 41 separate batches, via boats and pipeline, to refiners in Texas and Louisiana. The average purchase price was $93.75 per barrel.
On Friday, West Texas Intermediate crude was selling for $47.05 per barrel.
Some of the proceeds from the 2014 sale have already been used to establish a gasoline reserve in the Northeast, said a Department of Energy spokesperson.
“With the remaining funds left in the account, the Department of Energy is initiating a buyback process to purchase additional crude oil for SPR sites along the Gulf Coast,” the spokesperson said.
According to a government notice, the purchased oil is intended for delivery to the Bryan Mound storage site located in Freeport, Texas — home to one of the underground salt caverns that make up the Strategic Petroleum Reserve.
Policymakers in the Energy Department and on Capitol Hill have been weighing changes to the emergency stockpile and questioning whether the government should sell off some of the stored crude amid a steep decline in net oil imports into the United States.
The United States is obligated to maintain a reserve of crude oil or production products equivalent to at least 90 days worth of net imports, as part of the country’s membership in the International Energy Agency. The United States is well above that threshold now.
Energy Secretary Ernest Moniz has suggested that the current approach to the strategic petroleum reserve — established in 1975 in the wake of the OPEC oil embargo — doesn’t mesh with today’s booming domestic production, and the surge in light, sweet crude being pulled out of wells in North Dakota, West Texas and other parts of the country.
Moniz has called for a “modernization” of the emergency oil stockpile but hasn’t provided specifics. More detailed recommendations are expected when the Obama administration releases the first phase of its quadrennial energy review later tho smooth.
That broad multi-year analysis will focus first on energy infrastructure and is meant to provide a roadmap for federal energy policy, executive actions and government-sponsored research programs.