(Adds analyst saying DOE plans to find money for the oil purchase in its own budget)
By Devika Krishna Kumar and Timothy Gardner
NEW YORK/WASHINGTON March 26 (Reuters) - The U.S. Department of Energy said on Thursday it has ditched plans to purchase crude for the nation’s emergency reserve due to a lack of funding from Congress, dealing a blow to President Donald Trump’s plan to give relief to energy companies amid the global oil market collapse.
The purchases were seen as a way to absorb some of the glut in crude markets caused by a crash in demand due to the spreading coronavirus pandemic and a flood of supply from top-producing countries. Worldwide oil demand could drop as much as 20% in April, and U.S. producers are swiftly slashing expenses to try to survive the downturn.
A senior administration official said the Energy Department has enough money of its own to move ahead with a potential purchase and is working with lawmakers on whether the funds must be re-purposed by Congress. It was uncertain where the money would come from, but an analyst said it has about $850 million in a modernization fund for the reserve, raised by previous sales. That would be more than enough for an initial 30 million barrel purchase.
U.S. oil prices have lost nearly half their value in March after Saudi Arabia and Russia failed to come to a deal to maintain supply cuts to bolster prices and as the coronavirus pandemic has shut worldwide aviation and kept consumers out of their cars.
Energy Secretary Dan Brouillette had asked lawmakers for $3 billion to purchase up to 77 million barrels to fill the Strategic Petroleum Reserve, but the stimulus package passed by the Senate on Wednesday did not include the funding. The initial purchase was to be 30 million barrels and was to have come from companies with fewer than 5,000 employees.
Trump said in a press conference earlier this month he had directed the Energy Department to take advantage of low oil prices and fill the SPR “to the top.” Buying the oil would have been a concrete move by the administration to help small to mid-size oil producers, many of which may face bankruptcies due to the price drop.
Analysts warned that without the SPR purchases, U.S. oil prices could fall even further. U.S. crude futures fell on Thursday, as the news stripped away a pillar of support it had versus international benchmark Brent over the last couple weeks, said Mizuho energy futures strategist Bob Yawger.
“They’re (drillers) going to produce at an all-time record high and at the same time they expect the government, everybody in the country to buy these barrels that they’re producing basically to stuff into storage, when all they had to do was not produce at the all-time record high? It’s political suicide to some degree to buy into that,” Yawger said.
U.S. crude futures were down more than 7% at $23.73 per barrel by 14:55 p.m. ET. Traders said without the plan, U.S. crude would likely continue its fall, with one physical crude trader estimating it could slide to between $15 and $12 a barrel.
Department of Energy spokeswoman Shaylyn Hynes said Brouillette was working on making sure the purchase occurs. He “calls on Congress to work with the administration to fund the President’s request as soon as possible,” she said. (Reporting by Devika Krishna Kumar, Laila Kearney in New York and Timothy Gardner in Washington; Editing by Dan Grebler, Steve Orlofsky and Cynthia Osterman)