Slick Oil Move Puts Saudis In A Tough Spot

Lisa Smith, BA (Hons), CeFA
By

The latest twist in the oil price war over who controls the global market was a slick move by US President Donald Trump.

As the price of a barrel of crude slumped below $30 at the same time as Saudi Arabia opened the valves to increase supply to 1.3 million barrels a day, Trump came up with a killer blow to protect the energy integrity of the US.

He announced the US would top up the strategic petroleum reserve by 77 million barrels, paying bottom dollar while the price is low.

“Based on the price of oil, I’ve also instructed the secretary of energy to purchase at a very good price large quantities of crude oil for storage in the US strategic reserve,” Trump said.

Saving billions of dollars

“We’re going to fill it right up to the top, saving the American taxpayer billions and billions of dollars, helping our oil industry and furthering that wonderful goal — which we’ve achieved, which nobody thought was possible — of energy independence,”

The reserve is a government owned oil lake stored in four caverns along the US Gulf coast that take up to 720 million barrels of crude. The oil is only tapped in times of emergency, which has happened just three times.

The aim is to ensure America has oil for the military and industry in uncertain times.

Slump in demand

The decision came as a shock to the Saudis, who have deliberately flooded the market in a bid to drive down the price of oil to put America’s shale oil producers out of business.

They are now left with huge pumped reserves looking for a buyer without achieving their goal or red faces by having to cancel their drilling program.

At the same, the coronavirus pandemic is leading to a slump in demand for crude worldwide as factories shut down and air travel is cancelled.

“Oil prices have reacted extremely negatively and we believe … that we have not seen the bottom of the oil price just yet,”  said Rystad Energy’s head of oil markets Bjoernar Tonhaugen.

“The potential loss of demand in March-April may dwarf anything the world has ever seen, just when OPEC producers open the floodgates of new supply to the market.”

Leave a Comment