The U.S. Department of Defense has been using the wrong oil price in its budget, leaving the largest single buyer of fuel in the world with liabilities potentially hitting billions of dollars.
The Pentagon continues to rely on WTI prices even though Brent oil is more relevant to the cost of fuels it buys on behalf of the armed forces.
Using the wrong benchmark has introduced increasing risk into the military budget, according to a critical report published on Tuesday by the Government Accountability Office
(GAO) (“Bulk Fuel Pricing: DOD needs to re-evaluate its approach to better manage the effect of market fluctuations”).
Moreover, the Department of Defense (DOD) still does not hedge its exposure to changing fuel prices, even though the Pentagon’s Defense Logistics Agency (DLA) buys more than 100 million barrels of fuel each year at a cost of $10 billion to $20 billion, according to the GAO.
The DLA purchases fuel on the open market and then sells it to the armed forces at a standard price.
Differences between the standard price and actual cost of buying fuel are absorbed into the Defense-wide Working Capital Fund.
Source: Reuters
The Pentagon continues to rely on WTI prices even though Brent oil is more relevant to the cost of fuels it buys on behalf of the armed forces.
Using the wrong benchmark has introduced increasing risk into the military budget, according to a critical report published on Tuesday by the Government Accountability Office
(GAO) (“Bulk Fuel Pricing: DOD needs to re-evaluate its approach to better manage the effect of market fluctuations”).
Moreover, the Department of Defense (DOD) still does not hedge its exposure to changing fuel prices, even though the Pentagon’s Defense Logistics Agency (DLA) buys more than 100 million barrels of fuel each year at a cost of $10 billion to $20 billion, according to the GAO.
The DLA purchases fuel on the open market and then sells it to the armed forces at a standard price.
Differences between the standard price and actual cost of buying fuel are absorbed into the Defense-wide Working Capital Fund.
Source: Reuters
