Trump administration prepares to buy 30M barrels of oil amid industry slump
The U.S. government will buy 30 million barrels of oil from producers amid a financial downturn for the industry.
The Department of Energy (DOE) announced Thursday it would conduct the sales to fill the Strategic Petroleum Reserve (SPR), fulfilling a pledge by President Trump to offer assistance to the oil industry as prices plummet with the twin threats of the coronavirus and a pricing war between Saudi Arabia and Russia.
“It is a common sense move. Everyone who has done any version of investing knows you try to buy low and sell high. The same goes with filling the SPR over time,” Energy Secretary Dan Brouillette said in a call with reporters.
This initial purchase comes as oil has fallen to about $25 per barrel, down from roughly $50 a month ago and a steep decline from the average $60 pricetag for oil already in the reserve.
The 30 million barrel purchase announced Thursday is a far cry from Trump’s Friday pledge to fill America’s emergency fuel supply “right up to the top,” maxing out at 77 million barrels.
But DOE said it plans to hold additional sales, perhaps as soon as in two to three months, and is preparing to ask Congress for $3 billion to fill its fuel reserves.
The purchase comes as Treasury Secretary Steven Mnuchin floated spending as much as $20 billion to assist the oil industry, figures Brouillette said the two had not discussed.
Stocking up on oil will no doubt anger some Democrats, who have repeatedly warned that coronavirus aid should include no lifelines for the fossil fuel industry.
“Diverting public funds to bail out this industry will do nothing to stop the spread of this deadly virus or provide relief to those in need,” House lawmakers wrote in a Tuesday letter spearheaded by Rep. Nanette Diaz Barragán (D-Calif.). “A bailout tells the American public that fossil fuel investors can rely on U.S. taxpayers to cover their bills when the industry’s corporate executives’ risky investments don’t pan out.”
Democrats in the Senate echoed a similar sentiment, fearing that money spent propping up the oil industry will accelerate climate change.
“Using federal assistance—including low-interest loans, royalty relief, tax breaks, or strategic petroleum reserve purchases—in order to prop up oil companies would be a wasteful misuse of government resources that would exacerbate the climate crisis,” Sens. Ed Markey (D-Mass.), Jeff Merkley (D-Ore.) and Bernie Sanders (I-Vt.) wrote in a letter to Trump.
Purchasing 30 million barrels now, even with record low oil prices, would still carry a significant cost, coming in at just below $1 billion.
But Brouillette told reporters he feels confident he has the backing from Congress as it weighs future coronavirus relief packages.
Numerous Republicans have already expressed support for the purchase — House Minority Leader Kevin McCarthy (R-Calif.) pegged it as “the right call.”
And when asked if he had personally heard pushback from Democrats, Brouilette simply said, “No, I have not.”
The offer to purchase crude is only open to small- and mid-sized U.S. companies with fewer than 5,000 employees. The oil itself must be produced within the U.S. as well.
With current prices, the U.S. could fill its petroleum reserve with less than $2.1 billion but Brouillette said he expects prices to begin to rise as coronavirus’s hold on the economy settles down, increasing the overall cost of filling the SPR. He also said the department may limit future purchases if oil prices rise rapidly, potentially due to a resolution between Saudi Arabia and Russia.
“We have every expectation that once we’re beyond this coronavirus pandemic we’re going to see a very robust upturn in demand and very strong economy coming back, but at this point in time we don’t know exactly when that will occur so we’re just trying to be as cautious and conservative as possible,” he said.
—Updated at 2:07 p.m.
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