The U.S. will start selling millions of barrels of oil from its Strategic Petroleum Reserve (SPR) as part of the bipartisan budget deal reached Monday night, as China continues to add to their oil stockpile.
Beginning in 2018 and extending through 2025, the U.S. will sell a total of 58 million barrels of crude oil, representing 8 percent of America’s total reserves. When adjusted for inflation, the U.S. paid roughly $74 a barrel for these reserves, however current market value only sits at $44 a barrel, reports Bloomberg. Its unclear how much the sale will offset the bill’s total cost.
The agreement between the White House and top lawmakers from both parties also allows for the additional sale of reserves to pay for a $2 billion program to modernize the SPR. Many economists question the wisdom of the move, given the current low price of oil, Reuters reports.
At current prices, raising the $2 billion needed for modernization would require the sale of roughly 45 million barrels of crude oil. If the bill passes, the total raid on the oil supply could exceed 15% of the U.S. SPR, Bloomberg reports.
The sale comes at a time when China is importing massive amounts of oil to build up their country’s oil reserve supply, seizing record lows in oil prices. India and European powers like Germany have also been using thecurrent slump in the market to boost reserve stockpiles, reports The Daily Mail.
Critics of the plan say that the SPR exists to combat a “severe energy disruption” and should not be used as a rainy day fund for budget measures. Bloomberg reports that analysts from the oil industry as well as former energy officials are uncomfortable with tapping into the SPR for quick cash, especially since the decline in oil prices is unlikely to recover by the start of the sale.
The sales will be “deposited into the general fund of the Treasury” to help pay for the Bipartisan Budget Act of 2015. According to Bloomberg, the deal will extend government funding through March 2017.