Oil Recovers: Trump Intervenes in the Market

With oil at 2002 lows and some analysts even encouraging the possibility of a price drop to zero dollars, Donald Trump has stepped into the market. He announced that he will initially buy 30 million barrels of oil to increase US strategic reserves. Brent’s barrel extends its comeback to touch $30. 

The oil market completed two frantic weeks on Friday. Furthermore, with the trigger for the collapses at the OPEC summit that on March 6 sealed the rupture of the pact on production cuts with Russia. 

Since then, Brent’s barrel has plummeted more than 50%, from $49 to $24. The price of the West Texas barrel sank at $20, hitting 2002 lows.

The increase in production forecast by Saudi Arabia and Russia coincided with the record drop in demand due to the sudden stoppage of activity in Europe and, increasingly, in the US. This perfect storm in the market became the reason for the collapse of oil prices.

Investment firms like Goldman Sachs, Jeffries, and Bank of America were forecasting prices for Brent even below $20 a barrel. The new scenario led to more extreme predictions. 

Mizuho Securities raised the possibility of a drop in the price of oil to zero dollars. The rates could even be negative. Given the market’s inability to store the massive stock of barrels that will cause a record drop in demand. According to the Japanese firm, the market, stabilized at around 100 million barrels, could suddenly find itself with a daily surplus of 20 million barrels per day.

The US intervenes in the market

Trump’s decision to intervene in the market mitigated the problem caused by the inability to store all the remaining barrels of crude oil. Moreover, Trump has announced that the US would buy up to 30 million barrels to increase its strategic oil reserves. In an election year, the move will ease a vital sector in states like Texas. 

The plans of the US Department of Energy go further. The strategic reserves, stored in Texas and Louisiana, currently have an available capacity of 77 million barrels. The US will initially buy 30 million barrels. But the country has already asked Congress for an extraordinary item of $3 billion to complete the strategic reserves. 

Paying 3 billion for the 77 million barrels of capacity available in warehouses would mean an average price of $38 a barrel. Which is well above the lows of $20.

Analysts at Goldman Sachs, now report that the drop in production will cause the price collapse. Rescue policies of Donald Trump with a view to the upcoming presidential elections in the US could boost the oil rebound to the levels close to $30 in the second quarter.