- Trump says the U.S. will buy oil for its Strategic Petroleum Reserve
- It is estimated that the U.S. has space for an additional 90 million barrels
- Crude oil fails to rebound as the selling pressure is still very strong
Crude oil prices failed to stage a more significant recovery despite comments from President Donald Trump that the U.S. plans to buy large amounts of crude for its reserves.
Fundamental analysis: “Fill it right up to the top” says Trump
Oil prices continued to move lower this week on the back of the coronavirus outbreak that is going to hurt the global economy more than anticipated, along with the price war between Saudi Arabia and Russia.
After introducing a travel ban on flights from Europe to the United States, which will further decrease the demand for oil, Trump has also declared a National Emergency. He also used the opportunity to say the U.S. will buy ”large quantities of crude” for the Strategic Petroleum Reserve (SPR).
“We’re going to fill it right up to the top,” said Trump before mentioning numerous benefits of this action, including “saving the American taxpayer billions and billions of dollars, helping our oil industry, and … it puts us in a position that’s very strong, and we’re buying at the right price”.
It is estimated that the capacity of Strategic Petroleum Reserve is already 90% full. Still, there is room for more than 90 million barrels of oil to be purchased and stored.
“It is a fantastic idea. The SPR is one of the few levers that the U.S. can pull in times of oil market tumult. It has served the country well when supplies get tight or otherwise become unavailable during times of natural disasters or geopolitical turmoil,” said John Kilduff, founding partner of Again Capital.
As a result of the low oil prices, the U.S.-based oil producers, such as Apache, Devon, and Murphy Oil, have already slashed their budgets by around 30%.
Technical analysis: A dead cat bounce
Following Trump’s remarks, crude oil prices moved slightly higher to close the week at $33.25. Overall, oil prices closed the weak nearly 20% lower to mark the third straight week of heavy losses.
The chart above shows that crude oil prices continue to trade near the multi-year lows. The price action rebounded off the ascending trend line, but the inability of the bulls to stage a more significant rebound is worrying.
The 2016 low of $26.07 is also the 17-year low for crude. This is still the major target for the bears. For the bulls, the price action will have to move above $43 first.
Crude oil prices failed to recover in a more substantial fashion despite Trump’s comments that the U.S. will buy crude for its reserves. The coronavirus outbreak continues to weigh on crude prices as the global economy is set to contract at a much higher rate than previously anticipated.