The administration of US President Donald Trump on Thursday said that it is seeking US$3 billion from the US Congress to top up the country’s strategic petroleum reserves, potentially propping up US oil producers after crude prices crashed globally.
Trump had directed the US Department of Energy last week to fill the US’ emergency stash of crude oil to the top, over objections from congressional Democrats who said he was favoring climate-damaging fossil fuels and the profits of oil giants.
Falling crude prices benefited US consumers filling up their cars, Trump said.
“But on the other hand, it hurts a great industry, and a very powerful industry,” Trump told reporters.
West Texas crude prices fell below US$21 a barrel on Wednesday after oil producers Russia and Saudi Arabia stepped up pumping, threatening the market share of US oil, and as COVID-19 moved the world toward recession and tamped-down consumer demand for energy.
US Secretary of Energy Dan Brouillette told reporters that the move was about filling up the country’s 713.5 million barrel Strategic Petroleum Reserve at a time of cheap oil, not about throwing US oil producers a lifeline in rough markets. The reserves are stashed underground in Texas and Louisiana.
“It’s a commonsense move. Everyone who’s done any personal investment knows you do your best to buy low and sell high,” Brouillette said.
Brouillette also said the US was not intervening against market forces to boost US oil prices.
Pointing to Russia and Saudi Arabia’s surge of production, he said that the purpose of the nation’s strategic oil reserves is “to mitigate this type of disruption.”
Though the oil industry’s major trade association, the American Petroleum Institute, says it does not want a government bailout, some in the industry are pushing for embargoes or tariffs.
Harold Hamm, executive chairman of Continental Resources, a major shale oil company, asked the US Department of Commerce to investigate what he contends is illegal dumping of below-cost crude oil onto the market by Saudi Arabia and Russia.
He also asked for an embargo, hoping that would halt some of the flow of cheap oil onto the market, at least in the US, saying that the two countries are trying to put US’ shale oil drillers out of business.
“It’s unfortunate that both of these countries chose — and this was an action they thought about — this particular time, while we have this global pandemic, to do something like this,” Hamm said.
Hamm has close ties to Trump, having donated to Trump’s campaign and served on a team of economic advisers.
Trump said that Saudi Arabia and Russia were “in a fight” on oil prices and output.
“And at the appropriate time, I’ll get involved,” he said, but did not say how.
Congress has to approve the money for the administration’s petroleum buy.
The administration must overcome opposition from some Democratic lawmakers.
The US has been selling down some of its reserves, so filling the reserves back up when oil is cheap makes sense, Rabobank energy strategist Ryan Fitzmaurice said.
It would not have much impact on the imbalance of supply and demand, because Saudi Arabia is ready to ramp up production by 3 million barrels per day next month.
“It’s not going to change the balance too much, and the Saudis are going to increase supply by far much more than we can buy,” Fitzmaurice said.
The US would seek to buy 30 million barrels of US-produced crude initially and a total of 77 million barrels eventually, Brouillette said.
Because the price is so low, the US will use less taxpayer money to fill up the reserves.
The question is whether, with everything else that is going on, it is a good idea to spend US$2 billion of taxpayer money, said John MacWilliams, senior fellow at Columbia University’s Center on Global Energy Policy.
“I would be targeting high unemployment,” he said.
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