With storage apparently running out in the US, some oil companies have started sending oil to the Strategic Petroleum Reserve (SPR) following an agreement with the federal government to lease space in the reserve.
The federal government originally intended to purchase 77 million barrels of oil for the SPR, which would have helped US oil producers by absorbing some of the excess supply while topping up the SPR with cheap oil. Funding for this was omitted from the recent $2 trillion stimulus package however, so the US Department of Energy instead decided to make 30 million barrels of storage in the SPR available for lease by US oil producers.
In a statement about the lease agreement, Dan Brouillette, the U.S. Secretary of Energy, said:
“When producing oil you have two options—you either use it or you store it. With the impacts caused by the COVID-19 pandemic, we are seeing an enormous decrease in demand as our country works to contain the virus. This is why making storage capacity available in the SPR is so important.”
While some US oil producers like ExxonMobil also have the capacity to refine oil into fuels and other products, such as Mobil compressor oil, the current pandemic has reduced demand dramatically. Storage now appears to be running low in the US. In Cushing, Oklahoma, the central storage hub is near capacity according to Reuters, which reports traders saying that the reported 30% free capacity has already been booked by companies looking to fill it soon.