Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, U.S., on March 24, 2016. (Nick Oxford/Reuters)
DOE wants to buy crude from small to midsize US producers. Deliveries may start in April, will run through June. Unclear if Congress will fund another 47 million barrel buy.The US Energy Department on Thursday formally requested to buy up to 30 million barrels of sweet and sour crude from US producers for the Strategic Petroleum Reserve, the initial step in the Trump administration’s plan to lessen the impact of low oil prices on domestic operators by filling government stocks to capacity.
Deliveries of the crude were expected to begin as soon as April and will likely run through June, DOE said.
The department plans to eventually purchase a total of 77 million barrels of US crude to fill the SPR’s four storage sites along the US Gulf Coast.
Energy Secretary Dan Brouillette said the Trump administration is asking Congress for $3 billion in funding for the total purchases, with a solicitation for the remaining 47 million barrels expected in 60-90 days.
“We’re seeing that there’s really broad support for that all across the Congress,” Brouillette told reporters. “I think it’s largely because the Congress fully recognizes the importance of the energy industry to the rest of the economy.”
Once the crude is purchased, the SPR could receive up to 650,000 b/d of crude to its caverns in Texas and Louisiana, according to Steven Winberg, the DOE’s assistant secretary for fossil energy.
“With its extensive storage, pipeline, and marine infrastructure along the Gulf Coast, the SPR will help relieve oil-related disruptions to our economy,” Winberg said in a statement.
Analysts, however, believe the reserve’s fill capacity is likely below 500,000 b/d and could be as low as 200,000 b/d.
Small, Midsize Producers
In a solicitation released Thursday, the department said its initial, 30 million-barrel purchase will focus on small to midsize US oil producers. Proposals to sell crude to the US government are due March 26.
In a statement, Mark Menezes, DOE’s under secretary for energy, said small to midsize producers have been “particularly hard hit” by the collapse of oil prices. Front-month Brent crude slid 13.4% on Wednesday to its lowest since May 2003, while prompt WTI futures were down more than 24% from Tuesday and were last lower in early February 2002.
At 1714 GMT, NYMEX front-month crude was trading around $24.90/b, up $4.53 on the day, while ICE front-month Brent was trading $3.37 higher at $28.25/b.
DOE said the solicitation Thursday was the “first step” in filling the SPR to its maximum capacity. US President Donald Trump on Friday called on DOE to begin buying crude for the SPR and to “fill it right to the top.”
The SPR has a 713.5 million-barrel storage capacity and, as of Friday, held 635 million barrels of crude, including 250.3 million barrels of sweet crude and 384.7 million barrels of sour crude.
Funding for SPR purchases could present a major obstacle for the Trump administration.
“We continue to see political headwinds,” analysts with ClearView Energy Partners said in a recent note, writing that it would be problematic for House Democrats to approve a plan depicted by Trump as “saving” the US oil industry.
Glenn Schwartz, director of energy policy at Rapidan Energy Group, said the Democrat-controlled House of Representatives would be unlikely to go along with any plan to bailout domestic fossil fuel producers without significant trade-offs, such a tax breaks for renewables or federal incentives for electric vehicles.
Trump would likely find such concession unpalatable, Schwartz said.
Trump’s plan is a stark departure from May 2017, when his administration proposed selling off half the SPR, which was roughly 270 million barrels of crude oil at the time, shut two of four SPR storage sites on the Gulf Coast and sell its 1 million-barrel gasoline reserve in the Northeast. That proposal was forecast to raise about $16.6 billion over a decade, but it was never taken up by Congress.
DOE is still under a statutory requirement by Congress to sell a certain amount of SPR crude, but Brouillette said the administration is urging lawmakers to delay any sales beyond this fiscal year.