Oil: What Trump’s SPR release means to markets? – Natixis

Abhishek Deshpande, Research Analyst at Natixis, explains that recently US President Trump announced a proposal to trim the national debt partly by selling off half of the USA’s existing SPR (Strategic Petroleum Reserve), equivalent to ~340mn bbl, in the next decade which will result in sustained pressure on oil prices.  

Key Quotes

“OPEC’s efforts to reduce stocks to the 5 year average could be watered down significantly by the sale of US SPR reserves, if this sale were to happen in his first term of office.”

“Oil prices could remain under sustained pressure if this proposal was to be agreed in congress, increasing the risk of further downside to oil price in the future, despite continued OPEC cuts.”

“Even though President Trump is planning to sell the SPR in the next decade, no information was released regarding how the sale will be phased. If the volumes sold were in line with the decline in total net imports, then the SPR reduction will be dependent on how quickly US net imports drop, either through an increase in US domestic production and hence increased exports off the back of that, or through a further decrease in US imports through policy changes, such as a border adjustment tax (BAT). Although the exact composition of the US SPR as well as the particular grade of oil that will be most impacted by the potential sale needs further clarification, global oil prices could remain under continued and sustained pressure if this proposal was to be agreed in congress, increasing the risk of further downside to oil price in the future, despite continued OPEC cuts.”

“Oil prices do not seem to have reacted much to this news as the proposal is not yet confirmed and still has to pass through congress, which has proven an obstacle to many of President Trump’s proposals in the past.”