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The falling price of crude oil makes this the opportune time for the government to fill its emergency oil reserves.
The U.S. Department of Energy (DOE) announced on Friday that it had begun purchasing 12 million barrels of crude oil for the nation’s Strategic Petroleum Reserve (SPR) in order to replenish stockpiles which were sold after hurricanes Katrina and Rita in 2005.
An aerial view of the Bryan Mound storage site of the Strategic Petroleum Reserve
“DOE plans to take advantage of the recent sharp decline in crude oil prices to enter the market,” the department said in a statement.
A Congressional moratorium imposed in May of last year, prevented the government from making purchases after crude oil spiked. Since hitting a high of $147 a barrel in July, crude oil has plummeted to the $30-$40 per barrel range, which allowed for the cancellation of the ban on purchases for the SPR.
Currently, the SPR has a storage capacity of 727 million barrels and an inventory of 702 million barrels (97%) stored in the SPR’s underground salt caverns located along the Gulf Coast of Louisiana and Texas.
“The SPR is a critical component of our nation’s energy and national security,” DOE spokeswoman Healy Baumgardner said in a statement.
The reserve was created in 1975 in the aftermath of the Arab oil embargo to provide a cushion against severe supply disruptions.
In the event of an emergency cut to supplies, the government can authorize for crude oil to be released to the public. The DOE hopes to have 70 days of imports stored in the reserves by 2009.
The department also said that an additional 2.18 million barrels will be bought to make up for missed allocations, and refiners are being asked to return 5.5 million barrels that were loaned from the U.S. reserve last year after hurricanes Gustav and Ike.
Crude oil for February delivery closed at a little above $46 a barrel Friday, after gaining 3.5 percent during trading on the New York Mercantile Exchange. In the aftermath of Hurricane Katrina in September, 2005, crude was selling between $62 and $67 a barrel on the spot market.
“Activities to resume SPR fill are taken in accordance with the provisions of the Energy Policy Act (EPAct) of 2005, which directs that DOE fill the SPR to its authorized capacity of one billion barrels, and advances the President’s agenda to increase the Nation’s energy security,” the DOE said in its press release.
The reserve held 567 million barrels when President George Bush took office in 2001.
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