President Donald Trump on Friday said he’s directed the U.S. Department of Energy to purchase crude oil for the Strategic Petroleum Reserve in an effort to support the battered energy sector.
“Based on the price of oil, I’ve also instructed the Secretary of Energy to purchase at a very good price large quantities of crude oil for storage in the U.S. strategic reserve,” Trump said.
“We’re going to fill it right up to the top, saving the American taxpayer billions and billions of dollars, helping our oil industry [and furthering] that wonderful goal — which we’ve achieved, which nobody thought was possible — of energy independence,” he added.
The administration’s move to purchase oil comes after the worst week for crude since 2008 as investors worried over evaporating demand from the coronavirus pandemic and a production ramp-up by top producers. The sell-off in crude whacked the equity of the largest energy companies in the U.S., with Exxon Mobil and Chevron down 20% and 12% respectively over the week.
But following Trump’s announcement on Friday, crude futures jumped 5% following the president’s announcement.
“It is a fantastic idea. The SPR is one of the few levers that the U.S. can pull in times of oil market tumult,” said John Kilduff, founding partner of Again Capital. “It has served the country well when supplies get tight or otherwise become unavailable during times of natural disasters or geopolitical turmoil. Releases of supplies have served to short-circuit price rallies in the past, and this filling may well serve to ebb the current sell-off.”
Cheap oil from Saudi Arabia, the world’s largest exporter, and the United Arab Emirates is aggravating the pressure on prices after talks to cut production with Russia soured late last week. Russia, the world’s second-largest producer, does not appear willing to return to its agreement with the Organization of the Petroleum Exporting Countries (OPEC), which has kept oil in a range around $30 a barrel for much of the last week.
For the week, Brent is set to fall around 24%, the biggest weekly decline since December 2008, when it fell nearly 26%.
“As of the latest data (March 6) the SPR was 92 million bbl short of capacity. This is the perfect time to top it up: prices are low and we’re engaged militarily in the Middle East. For once, Russia’s loss is our gain,” said Scott Nations, chief investment officer of NationsShares.
Oil and gas lobbyists met with White House policy staffers Wednesday morning to discuss the administration’s response to the economy, OPEC price war and the coronavirus, a representative for the American Petroleum Institute told CNBC. Meanwhile, the Energy Department had on Tuesday suspended the sale of crude oil from the Strategic Petroleum Reserve that would have put more oil into the market.
The move to purchase more oil for the U.S. reserve also came as part of the administration’s response of supporting the American economy that’s trying to determine to what extend the novel coronavirus will impact growth. Trump declared a national state of emergency in his Friday speech from the Rose Garden.