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US to buy crude to encourage greater production

The US Department of Energy (DoE) has unveiled a new plan to encourage greater domestic US oil production by signalling to operators that it will purchase crude oil in future from them to replenish the Strategic Petroleum Reserve (SPR).

Some have called for US oil producers to step up production to help bring down oil prices. While some like ExxonMobil and Chevron, which make the Mobil and Texaco lubricant ranges, have announced plans to increase production, many are cautious about making long-term investments in new drilling in case of a market downturn.

The US is currently in the process of selling 180 million barrels of crude oil from the SPR in an effort to bring down oil prices. The SPR will need to be refilled at some point to serve its function, and by signalling now that the US Government will buy crude oil when prices are lower, it is hoping to give oil companies greater confidence to invest in expanding production.

In a press release, the DoE said that in addition to replenishing the SPR:

“This replenishment structure also will help encourage the production we need now to lower prices this year by guaranteeing this demand in the future at a time when market participants anticipate crude oil prices to be significantly lower than they are today.”

The DoE says deliveries are “likely” to start after the 2023 fiscal year. The price for delivery in December 2023 is currently about $20 less per barrel than the current spot price.

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