U.S. Energy Department to Buy Oil for Strategic Reserves
Government to purchase up to 5 million barrels of oil
WASHINGTON—The Energy Department on Friday announced it was buying up to five million barrels of oil for the U.S. strategic petroleum reserve, a federally owned stockpile of oil that is available in case of an emergency or sudden disruption in oil supply.
In March 2014, the Energy Department announced it was selling five million barrels of sour crude oil in what the government described then as a “test sale.” Friday’s announcement to buy back that amount of oil is required by law within one year, according to Energy Department spokeswoman Lindsey Geisler.
The Energy Department will be able to buy five million barrels of light, sweet oil at roughly half the price they earned for the same amount of sour crude last year. The benchmark U.S. oil price fell 4.7% Friday to $44.84 a barrel on the New York Mercantile Exchange. The price for light, sweet oil averaged right around $100 a barrel in March 2014. Sour crude typically costs less than light, sweet crude because it is considered lower-quality by refiners.
Oil prices have plunged more than 50% from their mid-June high due to surging U.S. production and lackluster global demand.
Friday’s prices slightly pared losses in late trading on the DOE announcement.
The size of the reserve fell from 696 million barrels in March 2014 to 691 million barrels in May, and it has stayed around that level since. The reserve has the capacity to hold about 727 million barrels of oil in underground salt caverns along the Gulf Coast. In a notice posted online, the government said that one of the reserve sites in Freeport, Texas, would be receiving the oil and could begin taking deliveries as early as May.
U.S. oil production has risen nearly 90% since 2008, to reach 9.4 million barrels of oil a day in February. That sharp output increase has called into question whether the federal government should have so much oil on standby.
In a report published in October 2014, the U.S. Government Accountability Office recommended reducing the size of the reserves. The amount of oil held in reserve exceeds the amount required to be kept on hand today since imports are lower. The report said the U.S. Department of Energy agreed with the GAO’s recommendation. The amount of foreign crude being imported to meet domestic needs has been cut in half to 30% of demand this year from 60% in 2005.
Write to Amy Harder at amy.harder@wsj.com and Nicole Friedman at nicole.friedman@wsj.com