Energy Dept. Yanks $3B Offer To Buy Oil From US Drillers

Law360 (March 26, 2020, 1:49 PM EDT) -- The U.S. Department of Energy late Wednesday abandoned a solicitation for 30 million barrels of oil to help fill the Strategic Petroleum Reserve and boost struggling U.S. producers, after funding for reserve purchases failed to make it into a U.S. Senate coronavirus relief bill.

The DOE issued a notice that it was withdrawing its March 19 solicitation, citing "the current uncertainty related to adequate congressional appropriations for crude oil purchases." The notice came after senators voted late Wednesday to pass the Coronavirus Aid, Relief and Economic Security Act, which would pump $2 trillion into the U.S. economy as it struggles to cope with the COVID-19 pandemic.

None of that $2 trillion includes funding Strategic Petroleum Reserve purchases, despite President Donald Trump's earlier vow to fill up the reserve with U.S. crude.

"Should funding become secure for the planned purchases, the department will reissue the solicitation," the DOE said in its withdrawal notice.

In announcing the original solicitation, the DOE said it sought to buy "up to 30 million barrels of sweet and sour crude oil with a focus on small to midsize U.S. oil producers."

The proposed 30 million barrel purchase, estimated to cost $3 billion, represented an initial step toward a goal announced by Trump to fill the Strategic Petroleum Reserve to its maximum level, which will require the purchase of about 77 million total barrels.

But Congress holds the purse strings for funding any Strategic Petroleum Reserve purchases. Several Democratic lawmakers decried the proposal as a bailout for the oil and gas industry that has nothing to do with addressing COVID-19.

"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," DOE spokeswoman Shaylyn Hynes said Thursday. "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 [energy] secretary calls on Congress to work with the administration to fund the president's request as soon as possible."

It's questionable how much a Strategic Petroleum Reserve purchase would have boosted U.S. oil producers amid oil prices that have plunged into the low $20-a-barrel range, as the industry grapples with Saudi Arabia and Russia ramping up oil production while the coronavirus pandemic depresses global energy demand.

An IHS Markit report issued Wednesday estimated that global oil demand could drop by more than 14 million barrels per day in the second quarter of 2020 compared with the second quarter of 2019.

--Additional reporting by Mike LaSusa. Editing by Orlando Lorenzo.

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