Oil prices fell on Tuesday after U.S. President Donald Trump proposed the sale of half the country’s strategic oil reserves, even as producer club OPEC and its allies cut output to tighten the market.
Brent crude futures were trading down 43 cents, or 0.8 percent, at $53.44 per barrel at 0643 GMT.U.S. West Texas Intermediate (WTI) futures were at $50.71, down 42 cents, or 0.8 percent.
The White House budget plan would sell off half of the nation’s emergency oil stockpile from 2018 to 2027 to raise $16.5 billion from October 2018, documents released on Monday showed. It also suggested opening up more production in Alaska.
The budget, which will be delivered to Congress on Tuesday, is meant as a proposal and may not take effect in its current form. But it reveals the administration’s policy hopes, which include ramping up American energy output.
The plan was released just a day after Trump left OPEC’s de-facto leader Saudi Arabia following his first overseas state-visit.
A release of U.S. strategic reserves would jolt oil markets, where the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, have pledged to cut output by 1.8 million barrels per day (bpd) in order to tighten the market.
OPEC, led by Saudi Arabia, and other participating producers will meet on May 25 and are expected to extend the period of the cut from just the first half of this year to all of 2017 and the first quarter of 2018.
Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore said the White House proposal was a surprise, but added that over a 10-year period the sales would only average around 95,000 bpd.
“It’s not huge, but it won’t help Saudi efforts,” he said.
The bigger effect, if implemented, would be more long-term as it is planned to last a decade.
The Brent forward curve shows prices rising towards $55.60 per barrel by April 2018, and prices declining from there towards $53.75 per barrel by late 2018.
The U.S. strategic petroleum reserves (SPR) are the world’s biggest, standing at around 688 million barrels, a week’s worth of global oil demand.
Sour crudes made up 60 percent of U.S. SPRs, while sweet crude made up the rest, said Virendra Chauhan of Energy Aspects.
Releasing reserves would add supplies to already high and rising U.S. production C-OUT-T-EIA of 9.3 million bpd, not far off levels of top suppliers Saudi Arabia and Russia.
The White House plan moves come after Goldman Sachs warned of “risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate.”
Demand may also slow. The Organisation for Economic Co-operation and Development (OECD) said that quarterly GDP growth in the OECD area decelerated sharply to 0.4 percent in the first quarter of 2017, compared with 0.7 percent in the previous quarter.
“Our macroeconomic view remains … price-negative, which is likely to affect the medium-term demand for crude oil,” said commodities brokerage Marex Spectron.