By Jennifer A. Dlouhy, Stephen Cunningham and Ari Natter
U.S. benchmark oil lost 23% last week, hammered by a combination of the global Covid-19 pandemic and a Saudi-Russia price war that is flooding the market. Prices jumped after Trump gave the order Friday to fill the reserve, paring their worst weekly performance since 2008, but lost more than 6% when this week’s trading opened in Asia.
Department of Energy staff have been working around the clock to facilitate the purchase, the official said. That includes making final decisions about what mix of crudes it will buy — a choice that could be especially significant for the companies extracting mostly light, sweet varieties in shale hotspots in New Mexico and west Texas.
The oil will probably be procured through direct purchases, the official said, as opposed to the royalty-in-kind arrangements that were the hallmark of the last plan to replenish the stockpile.
The intention is to focus on U.S. oil producers, but that’s not expected to limit the involvement of traders or other intermediaries, the official said. The reserve could take in about 225,000 barrels a day, though the four sites, each with several underground salt caverns, can be filled at different paces.
The U.S. stockpile, which was set up after the Arab oil embargo in the 1970s, has a maximum storage capacity of about 713.5 million barrels in salt caverns across the U.S. Gulf Coast. It now contains about 635 million barrels.
Major questions remain about how the Energy Department will pay for the crude. ClearView Energy Partners LLC managing director Kevin Book said in a research note that it’s likely Congress will have to appropriate money for the purchases or at least sign off on the transfer of funding from other Energy Department accounts.
A full 77-million-barrel transaction would cost about $2.4 billion at Friday’s closing price of $31.73 a barrel for West Texas Intermediate, the U.S. benchmark.