President Trump's plans to sell half of the US strategic oil reserve sounds familiar, and could turn out to be fundamentally misguided. Especially if the oil price cycle has hit bottom and is starting to move up.
“I immediately thought of Gordon Brown's decision as Chancellor to sell UK gold at a low price, just before it started to ratchet up,” says Michael Baxter, economics spokesman for The Share Centre, a UK retail stockbroker.
Gordon Brown's timing turned out to be immaculately wrong and rather dented the notion that he was somehow an iron chancellor. The reported plans to sell US$16.5bn of oil between by 2027 must be seen in perspective.
Trump wants to
- Make US oil industry great again
- Regulate and tax US oil less
- De-emphasise climate change
The $16.6bn is not even a fleabite against the $4 trillion-plus requested expenditures in the 2016-17 US budget. But it is symbolic, especially when announced during his trip to the Middle East. If the US can be self-sufficient through fracking, why have a strategic reserve?
Strategic oil facts
- Average price paid for oil in the reserve - $29.70 per barrel
- Investment to date - About $27.8 billion ($7 billion for facilities based on replacement value; $20.8 billion for crude oil based on accounting value)
- Drawdown capability - maximum nominal drawdown capability - 4.4 million barrels per day
- Time for oil to enter US market - 13 days from presidential decision
- Highest inventory - The SPR was filled to its 727 million barrel design capacity on 27 December, 2009, the highest inventory ever held
Source: US Department of Energy.