Oil in Global Economy Series: Oil suffers major sell-off as Trump-budget proposes reserve sale

Oil suffered a major selloff during the late New York hours yesterday, which is continuing well into the Asian hours as the budget presented by the White House suggests selling half of the U.S. strategic reserve. The proposed budget comes at a time when the Saudi Arabia’s oil minister and the Russian oil minister are working to shore up supports for an extension of the oil deal agreed in last November to curb supplies by 1.8 million barrels per day before the OPEC meeting on 25th May.

The White House budget proposal suggests gradual selloffs of half of the Strategic Petroleum Reserve (SPR) beginning October 2018. The U.S. SPR is the biggest in the world with 688 million barrels, more than 7-days’ worth of supplies for the entire world.

Many oil market analysts were surprised by the selloffs as the suggested sale by the United States would be very gradual and likely to amount to only 3 million barrels per month or just about 100,000 barrels per day, which is considerably minuscule considering the global demand of 96 million barrels per day. Others suggest that it matters nonetheless, especially at a time when the U.S. production recovered to 9.3 million barrels per day and the OPEC and 11 participating N-OPEC producers are struggling to make a major impact on the market by cutting their supplies by 1.8 million barrels per day.

The price of oil (WTI) is down 1.3 percent from its yesterday’s peak and currently trading at $50.7 per barrel and Brent at $2.7 per barrel premium to WTI.