U.S. budget deal will trim the nation's oil reserve by 15%

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Budget deal requires the sale of 100 million barrels of SPR oil

The U.S. budget deal requires the sale of 100 million barrels of crude from the nation's Strategic Petroleum Reservebetween 2022 and 2027--that's a cut of about 15% from the current level, and the money the oil generates will go to theTreasury, not to the energy infrastructure repair fund.

"The U.S. does not require as large a Strategic Petroleum Reserve," given the decline in the nation's imports, saidMichael Lynch, president of president of Strategic Energy & Economic Research. However, "the planned sales over manyyears is unusual, and appears to reflect a desire for revenue enhancement more than anything else."

The Energy Department will sell 30 million barrels of crude oil from the SPR, which currently holds 665.1 millionbarrels, from 2022 through 2025, another 35 million barrels during the fiscal year 2026 and 35 million barrels duringfiscal year 2027--for a total of 100 million barrels--according to the text of the deal (https://www.appropriations.senate.gov/imo/media/doc/Bipartisan%20Budget%20Act%20of%202018.pdf). At a current price of roughly $60 a barrel, that would generate $6 billion.

The money, the deal says, "shall be deposited in the general fund of the Treasury during the fiscal year in which thesale occurs."

James Williams, energy economist at WTRG Economics, likened the required sales to "the government selling a buildingit no longer needs."

The SPR's "original intent was to have sufficient oil to replace net petroleum imports for about three months," saidWilliams. But "with our rising production, imports have been falling so it takes less oil to cover imports than before."

Williams estimated that the 100 million-barrel sale would leave about 550 million barrels in the reserve--enough tocover over seven months of net imports. That's "twice the original coverage and four times the coverage we had a decadeago," he said.

The budget deal also requires the sale of up to $350 million of crude from the reserve this year. At roughly $60 abarrel, that would equal 5.8 million barrels of oil.

The funds generate for this year's sale will be deposited into the Energy Security and Infrastructure ModernizationFund, which was created in 2015 to provide for the construction, maintenance, repair, and replacement of SPR facilities.

-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com