Donald Trump cosied up to his friends in the oil industry on Thursday as his administration said it was seeking $3bn from Congress to top up the country’s strategic petroleum reserves, potentially propping up US oil producers after crude prices crashed globally.
President Trump had directed the Energy Department last week to fill the United States' emergency stash of crude oil to the top, over objections from congressional Democrats who said he was favouring climate-damaging fossil fuels and the profits of oil giants.
Trump said on Thursday that plummeting crude prices benefited US consumers filling up their cars.
“But on the other hand, it hurts a great industry, and a very powerful industry,” Mr Trump told reporters.
The Trump team were apparently fielding calls from pals in the energy sector last week who were "extremely upset about oil prices" and also fearful of "talk about the government instituting some sort of paid sick-leave policy", Vanity Fair reported.
The US would seek to buy 30 million barrels of US-produced crude initially and a total of 77 million barrels eventually, Energy Secretary Dan Brouillette said on Thursday.
Because the price is so low, the US will use less taxpayer money to fill up the reserves. But the question is whether, with everything else that’s going on, it’s a good idea to spend $2 billion of taxpayer money, said John MacWilliams, senior fellow at Columbia University´s Center on Global Energy Policy.
“I would be targeting high unemployment,” he said.
“We’re in a global health and economic crisis and Trump wants to bail out, you guessed it, the oil industry,” tweeted Greenpeace.
Treasury Secretary Steve Mnuchin had earlier suggested spending as much as $20 billion in supporting the oil industry.
“Let’s go out and buy. Fill up the reserve,” Mnuchin said in a Fox Business Network interview.
A group of House Democrats wrote to Trump on Tuesday, warning against further funding for the fossil fuel industry.
“Diverting public funds to bail out this industry will do nothing to stop the spread of this deadly virus or provide relief to those in need,” lawmakers wrote in a letter spearheaded by Democrat Rep. Nanette Diaz Barragán of California.
“A bailout tells the American public that fossil fuel investors can rely on U.S. taxpayers to cover their bills when the industry’s corporate executives’ risky investments don’t pan out.”
West Texas crude prices fell below $21 a barrel Wednesday after oil producers Russia and Saudi Arabia stepped up pumping, threatening the market share of U.S. oil, and as the coronavirus moved the world toward recession and tamped-down consumer demand for energy.
Brouillette told reporters Thursday that the move was about filling up the country’s 713.5 million barrel Strategic Petroleum Reserve at a time of cheap oil, not about throwing U.S. oil producers a lifeline in rough markets. The reserves are stashed underground in Texas and Louisiana.
“It´s a common-sense move. Everyone who´s done any personal investment knows you do your best to buy low and sell high,” Brouillette said.
Brouillette also denied the United States was intervening against market forces to boost U.S. oil prices. Pointing to Russia and Saudi Arabia´s surge of production, he said the purpose of the nation´s strategic oil reserves is “to mitigate this type of disruption.”
Though the oil industry´s major trade association, the American Petroleum Institute, says it does not want a government bailout, some in the industry are pushing for embargoes or tariffs.
Harold Hamm, executive chairman of Continental Resources, a major shale oil company, asked the Commerce Department to investigate what he contends is illegal dumping of below-cost crude oil onto the market by Saudi Arabia and Russia. He also asked for an embargo, hoping that would halt some of the flow of cheap oil onto the market, at least in the U.S., saying the two countries are trying to put America´s shale oil drillers out of business.
“It´s unfortunate that both of these countries chose - and this was an action they thought about - this particular time, while we have this global pandemic, to do something like this,” Hamm said.
Hamm has close ties to Trump, having donated to Trump´s campaign and served on a team of economic advisers.
Trump said Thursday that Saudi Arabia and Russia were “in a fight” on oil prices and output. “And at the appropriate time, I’ll get involved,” he said. He did not say how.
Congress has to approve the money for the administration’s petroleum buy. The administration must overcome opposition from some Democratic lawmakers.
The US has been selling down some of its reserves, so filling the reserves back up when oil is cheap makes sense, said Ryan Fitzmaurice, energy strategist at Rabobank. But it won't have much impact on the imbalance of supply and demand because Saudi Arabia is ready to ramp up production by 3 million barrels per day next month.
“It's not going to change the balance too much, and the Saudis are going to increase supply by far much more than we can buy,” Fitzmaurice said.
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