U.S. Energy Sec. Federico Peña has postponed for a month the Department of Energy's plans to sell another $207.5 million worth of oil from the Strategic Petroleum Reserve.
Congress passed a budget bill last year that would require the sale this fiscal year to pay for the operation of the SPR during the current fiscal year. Peña recently announced DOE would proceed with the sale and asked for solicitations to buy the oil.
At the same time, he complained, "This oil cost us an average of just over $27/bbl, and we cannot possibly expect to get anywhere near that in today's market.
"Taxpayers stand to lose $175 million or more depending upon how low prices are in the coming weeks. I have no choice, however, but to follow the congressional directive."
Before recessing, the Senate passed a supplemental appropriations bill that would cancel the sale.
Peña postponed the event after receiving assurances from Sen. Slade Gorton (R-Wash.) and Rep. Ralph Regula (R-Ohio), who chair the congressional appropriations committees with DOE oversight, that they would work to rescind the sale when the bill goes to conference.
Selling at a loss
DOE has paid an average $27.14/bbl for SPR crude, primarily because most of the oil was bought in the early 1980s, when prices were higher than $30/bbl. Before it stopped buying oil in 1994, it was paying just over $17/bbl.
Peña said that, if Congress does not halt the sale, the sharp dip in crude prices could force DOE to sell twice as much oil as originally anticipated.
DOE said the crude will probably bring $10-15/bbl, requiring the sale of 14-21 million bbl to meet the revenue target.
It said, "Compared with the average price the government paid for the crude oil, a sale of this size could result in a net loss of $175 million or more. It also would drop the SPR's current 563 million bbl inventory to less than 550 million bbl, the lowest level since 1987."
Peña said, "The sale also could further depress oil prices, perhaps by as much as 50-60¢/bbl. While low oil prices are good for the nation's consumers, many of our smaller, domestic oil producers have already been pushed to the economic brink.
"A further price drop could force a shut-in of many marginal wells and put some small producers out of business. In terms of our future energy security, a further loss of domestic production is something this nation can ill afford."
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