• The price war between Saudi Arabia and Russia exacerbated a global oil glut that has sent prices plumetting
  • OPEC+ have agreed to cut production by 10 million barrels a day
  • Since the pandemic began, oil demand has dropped by 30%

The U.S. Department of Energy said Tuesday it is negotiating contracts with nine oil companies for storage space in the strategic petroleum reserve. The oil price war between Saudi Arabia and Russia worsened a global oil glut, pressuring storage capacity.

“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,” Energy Secretary Dan Brouillette said in a press release.

“Providing our storage for these U.S. companies will help alleviate some of the stress on the American energy industry and its incredible workforce.”

The oil companies want to use 23 million barrels of the reserve’s 77-million-barrel capacity. Most of the deliveries are expected to be made in May and June, but could start earlier. The companies will be able to retrieve their oil through March 2021.

Word of the negotiations came after most of the world’s leading oil producers agreed to reduce global output by about 10%, about 10 million barrels a day. Experts say global demand, however, has dropped by 30%.

With oil prices at levels not seen for years, President Trump had proposed filling the strategic petroleum reserve, but Congress declined to provide the $3 billion necessary in the recently adopted $2.2 trillion coronavirus relief package.

Trump sought to help the U.S. shale oil industry, which needs prices of $40 a barrel. Crude oil futures currently are trading around $21 a barrel.

Brouillette said Monday he expects the oil industry to bounce back quickly once the pandemic is over.

"The historic agreement that we saw over the weekend from OPEC and OPEC+ is roughly 10 million barrels, but that is in fact only half of the story," Brouillette said on Fox Business. "When you add up all of the production cuts around the world, we're going to be much closer to 20 million barrels per day coming off the market."

India plans to fill its strategic reserve by the third week of May, storing 19 million barrels.