The Energy Department said Tuesday it had suspended a planned sale of crude oil from the Strategic Petroleum Reserve, a day after global oil markets suffered their biggest loss since the 1991 Gulf War.
Price declines of up to 30 percent were precipitated by concerns the new coronavirus would tamp down demand and after Saudi Arabia and Russia failed to reach a deal to cut their oil production.
“In light of the recent fluctuations in global oil markets, the U.S. Department of Energy is suspending the recently announced sale of crude oil from the Strategic Petroleum Reserve,” Jess Szymanski, a DOE spokeswoman, said in a statement. “The sale was designed to raise revenue for SPR facility maintenance and upgrades. Given current oil markets, this is not the optimal time for the sale.”
Congress has at least four times since 2015 tapped the reserve to pay for legislation, including the 21st Century Cures Act, the 2017 tax overhaul, the 2015 bipartisan budget agreement and the 2015 highway infrastructure bill.
Some of those sales have already occurred, others are mandated as late as 2027.
DOE sold about 10 million barrels in the fall of 2019, and those deliveries took place in October and November.
Shell Trading Co., Phillips 66 Co., Motiva Enterprises and Marathon Petroleum Corp. were on the other end of those transactions. There were about 635 million barrels in the reserve as of March 1.
Freezing the sale of up to 12 million barrels of crude could save the federal government hundreds of millions of dollars, since international oil prices fell from the $60-plus range in January to about $34 at market close in New York Monday.
As recently as Friday, Energy Secretary Dan Brouillette had acknowledged to reporters it was a far from ideal time to sell from the SPR. Late Monday, Mike Sommers, president of the American Petroleum Institute, an industry trade group, said the industry was not in talks with the Trump administration for financial help in response to the price drop.
"We're not in discussions with anyone at the administration at this time for any program at the industry," Sommers told reporters. "We believe we shouldn't be reacting to one day of a market downturn,” he said, adding of oil companies, "I don't think anyone is making any money at $30.
Brouillette has remained open to SPR sales. During his confirmation process to be deputy secretary, he cast doubt on the idea of the reserve altogether. “I am not convinced that a single repository or a series of repositories in one location in the country is going to serve us well in certain moments or certain catastrophes,” he told Sen. Tammy Duckworth, D-Ill.
Before the DOE made its announcement, Sen. Kevin Cramer, R-N.D., said the oil markets already have implications of SPR sales built in.
“I personally don't think it matters much in the big scheme,” Cramer told reporters. “It's a supply that's either available now or it's gonna be available later. And to me it's already baked into the supply-demand balance,” he said.
“I personally don't think we need a strategic drawing,” Cramer added. “I don't even really like that whole concept.”