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U.S. Discusses Buying Oil For SPR To Help Shale Drillers

Oil industry representatives have pitched for discussion to the U.S. Administration the idea that Washington buy cheap crude oil to replenish the Strategic Petroleum Reserve, which would also remove millions of barrels of oil from the heavily oversupplied market and may help U.S. producers that could turn out to be the first victim of the Saudi-Russian oil price war.

Oil industry lobbyists have told the Trump Administration that it might be a good idea to buy the dip with oil prices in the $30s this week compared to $50 last week, in order to fill the SPR, Bloomberg reported on Wednesday, quoting three people with knowledge of the matter. 

The Strategic Petroleum Reserve, set up in the 1970s when the Arab oil embargo created a fuel crisis in the United States, held a total of 635 million barrels of crude oil as of March 6, 2020, including 250.3 million barrels of sweet crude and 384.7 million barrels of sour crude oil.  

The SPR has been typically used in times of emergencies with Administrations releasing crude oil from it to relieve price spikes in events such as hurricanes or wars. Now the idea goes the other way round — buy the dip to fill the SPR and remove some tens of millions of barrels of oil from the market, to ease the glut which is set to become even greater in the coming months as Saudi Arabia and Russia are each determined to see who will blink first in this oil price war.

The SPR has authorized storage capacity of 713.5 million barrels, so it still has the capacity to hold another 78 million barrels before it is full.

On Tuesday, the Department of Energy said that it was suspending an upcoming sale from the SPR.  

Related: China’s Refiners Love The Saudi-Russia Oil Price War

“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. The Department continually monitors and evaluates global oil markets and will provide updated information as market conditions change,” DOE Spokeswoman Jess Szymanski said.

Apart from a possible buying for the SPR, the Trump Administration is considering other relief measures for U.S. oil producers, including tax relief.

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According to Bloomberg, the Administration is also weighing the idea to cut royalty rates for oil and gas production on federal land, but this idea will likely meet opposition not only from Democrats but also from some Republicans who have said that federal royalty rates are too low.

By Tsvetana Paraskova for Oilprice.com

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