Washington — The Trump administration's plan to buy up to $3 billion of US crude oil to fill the Strategic Petroleum Reserve remains a bone of contention holding up Congress' economic aid package, with the possibility mounting that it could get cut for now to break the impasse.
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House Democrats late Monday offered a new stimulus proposal that would scrap the SPR purchases, remove up to $450 billion in loans and loan guarantees that could potentially go to the energy sector, and only grant financial relief to airlines if they commit to sharp emissions reductions.
The Democrats' plan is being seen as a messaging bill while negotiations continue to move the two parties closer to a package that
could go to a preliminary Senate vote Tuesday or Wednesday.
"We have not yet seen draft text, but sources have suggested that SPR crude purchasing language in the second draft could be sacrificed to secure passage through the Senate," said Kevin Book, managing director of ClearView Energy Partners.
If Congress rejects the SPR fill plan, the oil market would lose access to capacity equivalent to about 8% of currently available commercial crude storage, said Bob McNally, president of Rapidan Energy Group. The consultancy expects crude and product storage to be full by the end of summer, if not earlier.
McNally added that oil futures could lose another $1/b or so if Congress axes the SPR purchases from the legislation.
"But there could be a bigger, psychological, bearish impact as failure to fill the SPR would signal Washington's complete inability to
execute no-brainer policy steps in the midst of a full-blown crisis and call into question the federal government's broader competence and coherence," he added.
The Trump administration has asked Congress for $3 billion to buy US-origin crude to fill the government's emergency oil stockpile.
The Department of Energy took the first step Thursday in seeking 77 million barrels of medium and heavy sour crudes to fill the SPR while prices are low. US Energy Secretary Dan Brouillette said the administration asked Congress for $3 billion to account for potentially higher crude prices in the coming months.
NO 'POISON PILLS'
Senate votes on Sunday and Monday both failed to advance the Republicans' aid package to respond to the coronavirus pandemic, in the face of Democratic opposition. Several Republican senators were unable to vote after one tested positive for the virus and others were in isolation for possible exposure.
Under the Republican proposal, parts of the energy sector may also qualify for loans or loan guarantees under a provision that triples the Treasury secretary's authority to help "severely distressed" industries up to $450 billion, according to ClearView.
House Speaker Nancy Pelosi told CNBC earlier Tuesday that the final bill would not have any "poison pills."
"We interpret that to mean: no SPR, no green energy," said ClearView's Book. "Moving quickly under Capitol Hill's unanimous-consent rules means that controversial provisions are likely to remain out of bounds, at least for now."
Book added that the SPR funding could make it into a later stimulus package if Congress decides to take it out of the current bill.