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Fill 'er up: Trump to buy oil to fill the Strategic Petroleum Reserve — and help companies

President says he will buy oil “at a very good price” to counter slumping demand.

March 13, 2020 at 6:00 p.m. EDT
Pump jacks operate in front of a drilling rig in an oil field in Midland, Tex. (Nick Oxford/Reuters)

President Trump said Friday that he would buy enough oil to fill up the Strategic Petroleum Reserve in an effort to bolster crude prices and shore up the financial condition of U.S. oil drilling companies.

The decision will allow the federal government to purchase up to 92 million barrels, enough to buy the entire output of Texas in approximately 18 days. The Strategic Petroleum Reserve, held in salt caverns in four locations near the Gulf of Mexico, currently holds 635 million barrels but can store as much as 727 million barrels.

By buying oil in an emergency rather than selling it, the move runs contrary to the original purpose of the Strategic Petroleum Reserve, which was created by President Gerald Ford in 1975 as a response to the Arab oil embargo in 1973-1974. That embargo, by cutting back supplies, sent crude prices soaring and the United States, then a major importer, faced shortages and gas rationing.

In this case, the government is buying oil to bail out domestic oil companies when prices are collapsing rather than selling oil to protect consumers when prices are soaring.

Many analysts want to end the current policy of gradually selling off the reserve. That was designed to raise money to maintain the reserve without running up the federal deficit; some lawmakers believed that higher U.S. production made the country less vulnerable.

“Congress' decision to sell SPR crude for non-energy purchases was deeply irresponsible,” Robert McNally, president of the Rapidan Energy Group, an energy consulting firm, said in an email.

“President Trump’s decision to stop congressionally mandated sales and take advantage of a price bust to fill the reserve is very wise,” added McNally, who dealt with the petroleum reserve policy as a member of President George W. Bush’s National Security Council. “Even if the U.S. remains a net exporter of oil, our economy remains vulnerable to supply disruptions anywhere in the world.”

Citing the instability of the oil markets, geopolitical risks and the very low amount of spare capacity among members of the Organization of the Petroleum Exporting Countries, McNally said, “This is a great opportunity to bolster our national security.”

Jason Bordoff, who served in President Barack Obama’s administration, agreed. “The SPR is an important national security asset, and it is good to see an Administration that had originally sought to sell off the SPR recognize the value of strengthening it when oil is cheap,” Bordoff said in an email.

The impact on prices would be “very small in a 100 million barrel per day market, but pushing up oil prices should not be the rationale for adding to the SPR,” he said.

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