The U.S. Department of Energy is suspending its plans to buy crude for the nation’s Strategic Petroleum Reserve after the requested $3 billion in funding for the project was left out of the $2 trillion stimulus package.
“Given the current uncertainty related to adequate Congressional Appropriations for crude oil purchases associated with the March 19, 2020 solicitation, the Department is withdrawing the solicitation,” an amendment filed Wednesday said. “Should funding become secure for the planned purchases, the Department will reissue the solicitation,” it added.
The original request for proposal, filed on March 19, outlined plans to purchase the first 30 million barrels of American-made crude oil for the SPR out of a total of 77 million barrels.
But funding to execute the plan was left out of the $2 trillion stimulus package which the White House and Senate agreed to Wednesday night, and which the House is expected to vote on on Friday. Initially $3 billion had been requested for the project.
Following the bill’s passage in the Senate, Senate Minority Leader Chuck Schumer said in an email to senators that the revised version of the bill “eliminated [a] $3 billion bailout for big oil.”
The Department of Energy is still hoping for some kind of deal. “Small to medium size American energy companies and their employees should be provided the same relief being provided to other parts of our economy, and the Secretary calls on Congress to work with the Administration to fund the President’s request as soon as possible,” Department of Energy spokesperson Shaylyn Hynes said in a statement.
The Department of Energy’s oil purchase plans followed a directive from President Donald Trump as the administration sought to shore up struggling oil producers amid tumbling crude prices.
U.S. West Texas Intermediate crude has shed more than 50% in the last month as prices get hit on the demand side from the coronavirus outbreak, and on the supply side by a price war between OPEC+ nations including Saudi Arabia.
“The American energy sector is a major driver of our nation’s economy and it is being significantly harmed by the impacts of COVID-19 and international market manipulation,” Hynes said.
President Trump first outlined his intention to fill the SPR earlier this month.
“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,” he said at a March 13 briefing from the Rose Garden.
“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.
On Thursday, WTI crude shed 4% to trade at $23.48 per barrel. At the beginning of the year, prices topped $63 per barrel. The steep decline is pressuring the highly-levered energy sector. Companies have announced capital spending cuts, dividend reductions and job losses as they struggle to breakeven with lower oil prices.
The energy sector is by far the worst-performing S&P 500 sector this year, falling 49% since January.
“President Trump’s directive to buy oil at a competitive price for the SPR is a common sense move benefiting taxpayers and supporting our nation’s economic and national security interest,” Hynes said.
– CNBC’s Jacob Pramuk contributed reporting.