President Donald Trump said on Friday that the United States would take advantage of low oil prices and fill the nation's emergency crude oil reserve, in a move aimed to help energy producers struggling from the price plunge.
"Based on the prices of oil, I've ... 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, a Republican, told reporters at the White House. "We're going to fill it right up to the top," he added without offering details.
The Strategic Petroleum Reserve has the capacity to store up to an additional 77 million barrels of oil, a Department of Energy official said, after Trump spoke. The official did not immediately comment on how fast the oil would be purchased for the reserve which currently holds 635 million barrels.
It was the first move by a president to fill the SPR since President George W. Bush, a Republican, ordered a fill to capacity in the wake of the Sept 11, 2001 attacks.
Oil prices posted the worst week in more than a decade, collapsing to about $31 a barrel on a rare combination of severe shocks to both supply and demand. The spread of coronavirus has hit demand by shutting travel around the world. Meanwhile, the launch of a price war between Saudi Arabia and Russia over the weekend has flooded global markets with crude.
Analysts were divided about the move, with one calling it an "unambiguously smart step." "Better to do it before an emergency," said Bob McNally, the president of the Rapidan Group consultancy. "We still need a large SPR because our economy remains vulnerable to price shocks from disruptions anywhere," said McNally, who was a White House energy adviser at the national security council under Bush.
Daniel Yergin, an energy historian who advises U.S. officials on energy matters, told reporters at the Energy Department late Thursday he was skeptical that buying oil for the reserve could quickly help energy producers.
"I don't see how you can use the SPR," he said. "With the amount of oil coming into market this is really going to lead to swollen inventories, it's going to take a long time to bring down."
McNally agreed it could take a while, even years, to fill the reserve, and added he did not know how the Trump administration would pay for it.
Former Secretary of State Henry Kissinger pushed for the creation of the SPR in 1975, after the Arab oil embargo spiked gasoline prices and damaged the U.S. economy. It is held in a series of caverns along the Texas and Louisiana coasts.
An oil and gas industry group welcomed Trump's directive. Anne Bradbury, chief executive of the American Exploration and Production Council, said it could "help alleviate the oversupply disruptions in the marketplace."
An environmentalist said Trump was putting energy companies first. It is "wildly inappropriate" for Trump to use the SPR "as a tool to prop up the oil and gas industry at a time when the White House should be focusing on how to help everyday people," said Alex Doukas, of Oil Change International.
CRUDE POSTS WORST WEEK IN DECADE
Oil prices on Friday posted their biggest week of losses since the 2008 global financial crisis, rocked by the coronavirus outbreak and efforts by top exporter Saudi Arabia and its allies to flood the market with record levels of supply.
The rare combination of severe shocks to both supply and demand has caused the crude market to collapse as producers around the world steel themselves for an unexpected glut of oil in coming weeks.
"It's a problem of an oil price war in the middle of a constricting market when the walls are closing in," U.S. energy historian Daniel Yergin said.
The coronavirus sparked panic selling across markets for the bulk of the week. The virus has infected at least 138,000 people worldwide and killed more than 5,000, disrupting business, markets and daily life.
Major oil producers were pumping more crude into the market as demand collapses. Saudi Arabia has chartered more than 30 crude supertankers to export oil in coming weeks, specifically targeting big refiners of Russian oil in Europe and Asia, in an escalation of its fight with Moscow for market share.
Goldman Sachs said it now expected a record oil surplus of six million barrels per day (bpd) by April, in a global market that usually consumes about 100 million bpd.
On Friday, prices were higher, rebounding after the United States and other nations signaled plans to support weakening economies. But Brent crude dropped 25% on the week, the biggest weekly fall since the 2008 global financial crisis. On Friday, Brent rose 63 cents to settle at $33.85 a barrel.
U.S. West Texas Intermediate (WTI) crude futures fell about 23% on the week, their biggest percentage decline since 2008. WTI rose 23 cents to settle at $31.73 a barrel, after earlier gaining to $33.87 a gallon.
Hopes for a U.S. stimulus package that could ease an economic shock from the coronavirus provided some support to the oil and stock markets on Friday.
"There's hope that all the stimulus will stabilize the economy and offset some of the concerns about weaker demand and keep parts of the economy strong enough to support oil prices," said Phil Flynn, analyst at Price Futures Group in Chicago.
Saudi Arabia, the world's largest exporter, and the United Arab Emirates offered more oil to customers after OPEC's talks with Russia and others on supply restraint collapsed last week.
Russia, the world's second-largest producer, has shown no interest in agreeing to further output curbs with the Organization of the Petroleum Exporting Countries.
Russian oil producers met Energy Minister Alexander Novak on Thursday but did not discuss a return to the deal. The head of Gazprom Neft said it planned to hike production in April, following the talks.
A Reuters survey showed analysts slashed their forecasts of Brent crude prices to $42 a barrel on average in 2020, compared with the $60.63 consensus in a February poll.
But the price slump may reduce some supply, by forcing out more costly producers.
Energy companies in the United States, which has surged to become the world's biggest crude producer because of a boom in pricier shale oil, are preparing to cut investment and drilling plans due to plunging prices.
The U.S. oil drilling rig count rose for a second week in a row despite a massive drop in both oil and natural gas prices this week and expectations from many analysts that the number of rigs will fall as producers deepen spending cuts.
Companies added one oil rig in the week to March 13, bringing the total count to 683, their highest since December, energy services firm Baker Hughes Co said on Friday.
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