(Bloomberg) — The U.S. government wants to buy up to 5 million barrels of crude to store in its strategic reserve on the Gulf Coast.
The Energy Department wants the crude delivered to its Bryan Mound storage cavern near Freeport, Texas, in June or July, according to a pre-solicitation notice posted on federal websites today. The purchase follows a 5 million-barrel test sale last spring, when oil prices were nearly double what they are now.
The Strategic Petroleum Reserve purchase comes as booming shale oil production has pushed private oil inventories in the U.S. to 449 million barrels, the most in records dating back to 1982. The reserve has 691 million barrels and 36 million barrels of empty space.
"Commercial storage is filling up," said David Hackett, president of Stillwater Associates, an energy consulting firm in Irvine, California. "If they buy domestic oil and put it in the SPR, that creates 5 million more barrels of space in commercial storage."
The law requires the Energy Department to use the funds from last year's test sale to purchase replacement crude, Robert Dillon, spokesman for Senate Energy and Natural Resources Committee Chairman Lisa Murkowski, R-Alaska, said in an e-mail.
The government plans to officially post its tender offer on its websites about March 23, according to the notice.
The purchase will be the first for the reserve since it reached its peak inventory level of about 727 million barrels in December 2009. It released 31 million barrels in 2011 to help offset supply disruptions caused by upheaval in the Middle East and North Africa, and exchanged 1 million with Marathon Petroleum Corp. after Hurricane Isaac blocked tankers from delivering crude to the company's Garyville refinery in Louisiana.
The SPR, which was created in the 1970s in response to the Arab oil embargo, has four underground storage caverns in Texas and Louisiana. The Bryan Mound site has 241 million barrels in storage now.
When the reserve finished filling in 2009, it held the equivalent of 80 days worth of crude imports to the U.S. Booming domestic oil production from shale wells has cut inbound shipments since then, and the reserve now holds 94 days of imports based on 2014 data.
"This is all happening at the same time that a debate is going on about whether we really need 700 million barrels in the SPR given the increase in production in the U.S., so it is surprising," said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
To contact the reporters on this story: Sarita Williams in Houston at swilliams261@bloomberg.net; Dan Murtaugh in Houston at dmurtaugh@bloomberg.net
To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard Stubbe
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