The Trump Administration is reportedly considering plans to sell off about half of the Strategic Petroleum Reserve (SPR), which is the federal government’s nearly-700 million barrel stockpile of crude oil. Such a move would help ease the budget crunch (bringing in about $17 billion at current oil prices) but would also (partially) return the function of resource allocation back towards the private sector. If the government leaves prices alone, the market is the best mechanism for storing reserves and easing supply shocks.
What’s the Purpose of the SPR?
The SPR was formed in 1975 amidst the scares over the OPEC embargo and perceived ‘energy shortage.’ As part of its membership in the International Energy Agency (IEA), the US committed to maintain a 90-day stockpile of net petroleum imports.  The idea of the SPR is straightforward enough: The federal government will maintain a ‘strategic’ reserve of crude, so that Americans will not be as vulnerable to a major disruption in the world oil market.
However, just as we don’t ask the federal government to build cars or grow food, there is also no theoretical reason that it should be in charge of emergency stockpiles of oil. Nicolas Loris had a thorough analysis on privatizing the SPR back in 2015, but in this post I’ll hit the main points.
Here is the Energy Information Administration’s breakdown of US petroleum stocks as of May 26, 2017 (the latest available at this writing):
This post was published at Mises Canada on JULY 3, 2017.