The Trump administration intends to buy tens of millions of barrels of oil for storage in the caverns of the US Strategic Petroleum Reserve, using a safeguard against fuel shortfalls as a tool to assist American energy producers. The move is a course reversal for the federal government that addresses the difficult position of the US oil and gas sector. Their revenues will be pinched as the coronavirus pandemic curtails fuel demand and global supply surges following last week’s collapse of production quotas maintained by Saudi Arabia, Russia and their allies. US crude prices have fallen to $33 a barrel.
Dan Brouillette, US energy secretary, late on Friday directed his department to “immediately initiate the process of purchasing American-made crude oil for storage in the US Strategic Petroleum Reserve as expeditiously as possible”. His order came hours after President Donald Trump declared a national emergency over the coronavirus outbreak, which has stoked fear across the country and killed 41 people. The government established the strategic reserve in the 1970s after an oil embargo damaged the US economy. Releases from the reserve have been used to cover emergency fuel outages, such as when Hurricane Katrina devastated energy infrastructure in 2005.
‘Because of the massive oversupply, [the purchases] will not be enough to balance the impact of the national emergency on fuel consumption
Per Magnus Nysveen, Rystad Energy
As recently as 2011 the reserve’s salt caverns along the Texas and Louisiana coasts were full with 727m barrels of crude. Emboldened by strong domestic shale oil production, Congress has since approved sales from the reserve to fund tax cuts, transport and other priorities, leaving 635m barrels in the stockpile. Earlier this week the energy department ditched the latest planned sale of 12m barrels from the reserve, citing “recent fluctuations in global oil markets”. On Friday Mr Trump said: “We’re going to fill it right up to the top.” Purchases of that magnitude would total less than a day of global oil demand. Rystad Energy, a consultancy, estimated they would add no more than 200,000 barrels a day of crude oil demand over the next three months. At the same time, quarantines and other public health restrictions could erase several million barrels a day from oil demand, the consultancy said.