Fall In Oil Prices As Trump Proposes Cutting U.S. Strategic Oil Reserves

The price of oil declined on Tuesday after it was reported that the president of the United States, Donald Trump, had proposed in a budget plan that 50% of the strategic oil reserves that the U.S. holds be sold off. This coincided with a plan by OPEC-member countries and even some non-member countries to extend the supply cuts as well as deepening the cuts in order to reduce the glut in the market.

Despite the prices having earlier risen in the morning trading session in Asia, Brent crude futures reversed the gains they had made. At 0232 GMT the price of a barrel was $53.66 which was a 0.4% decline or 21 cents from the previous close. WTI futures fell by 19 cents to settle at $50.94 a barrel.

Federal purse strings

According to the White House budget plan, selling half of the U.S. strategic oil reserves would raise approximately $16.5 billion. However, it is not guaranteed that the U.S. Congress will go along with the plan as it controls the federal purse strings and is known to ignore presidential budgets. But if the plan were to be effected, it would place further downward pressure on oil prices as it would be adding more supplies to the market at a time when OPEC and non-OPEC producers are making efforts to tighten the market and drive the prices up.

Commodity traders were of the view that since any sales from the U.S. strategic oil reserves would begin in 2018 they would affect prices in the long term rather than in the short term.

“That’s a surprise. Over a 10 year period though, so slightly less than 3 million barrels per month, it’s not huge but it won’t help Saudis efforts,” said the Singapore-based Strong Petroleum’s managing director, Oystein Berentsen.

Vienna meeting

On May 25, OPEC member countries led by the kingdom of Saudi Arabia will meet in Vienna, Austria. One of the expected subjects of discussion is the extension of the supply cuts that had been initially planned to be in effect for one year but which may be lengthened by a couple of more months.

The quantity of the strategic petroleum reserves that are currently held by the United States are approximately 688 million barrels which is roughly equivalent to the global demand in a week. Sweet crude grades make up about 40% of the strategic petroleum reserves while sour crudes make up the remainder.

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