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Crude Oil Prices Fall as Trump Mulls Tapping Into US Emergency Oil Stockpile

Crude Oil Prices Fall as Trump Mulls Tapping Into US Emergency Oil Stockpile

2018-07-16 10:30:00
Justin McQueen, Analyst
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Oil Price Analysis and News

  • Crude Oil prices fell on reports that Trump may tap into US Emergency Oil Stockpile.
  • Options under review range from a test of 5mln barrels followed by a release of 30mln barrels

For a more in-depth analysis on Oil Prices, check out the Q3 Forecast for Oil

Oil Prices Fall on Potential US Emergency Oil Stockpile Release

Crude Oil prices fell late on Friday’s session following reports that the Trump administration is actively considering a release from the Strategic Petroleum Reserve (SPR), which is the world’s largest oil stockpile. The options that are under review range from an initial test of 5mln barrels followed by a release of 30mln barrels, whereby the release could come ahead of the US midterm elections in November.

What is the Strategic Petroleum Reserve?

The SPR is the world’s largest oil stockpile, which holds around 660mln barrels of US crude. According to the Energy Department, it is predominantly intended to be used in the event of a war (2011 Libyan War) that disrupts global oil supply or following a natural disaster (hurricanes) so that the US economy would be protected from supply shocks in times of tightened supply. However, non-emergency sales can be authorized in order to respond to minor supply disruptions or to raise federal revenue.

Why is Trump Considering Tapping into US SPR?

According to data from AAA, US gasoline prices are up 28% at $2.88 and hovering around the highest levels in 3yrs. This has largely been due to the surge in crude oil prices (make up half of US gasoline prices), which recently hit 4yr highs on the back of the United States decision to pull out of the Iranian Nuclear Deal and place sanctions on Iran, attacking their Iranian exports and potentially leading to a drop of 500k-1mln barrels. High gasoline prices may not bode well for the Republicans at the upcoming midterm elections given the impact on consumer spending. Subsequently, Trump has been on the offensive to bring down oil prices by publicly criticizing OPEC for creating artificially high prices, while also prompting the cartel to raise production.

Trump Meets with Putin

Amid the current situation with oil prices, it is likely that the oil market will be quite high on the agenda between Trump and Putin. In turn, a more potent use of releasing stockpiles from the SPR would be to take a coordinated action with Russia, who have been very keen to boost oil production. Consequently, this would likely place a lid on oil prices in the short term.

OIL PRICE CHART: Daily Time-Frame (June 2017-July 2018)

Crude Oil Prices Fall as Trump Mulls Tapping Into US Emergency Oil Stockpile

Momentum has shifted to the downside, following last week’s plunge in oil prices. Initial target for oil sellers is for the 50DMA situated at $68.70, while the 100DMA hovers around the $68 handle, before a potential test for $66.53, which marks the 23.6% Fibonacci Retracement of the $42.07-74.08 rise. On the upside, resistance is seen at the 20DMA ($71.30), while last week’s high around $73.40-50 could cap price action.

Chart by IG

Crude oil price forecast – what next for the commodity?

According to IG speculative positioning, US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias. To see oil speculative positioning data.

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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