As Russia and Saudi Arabia lock horns in what could be a protracted oil war, President Donald Trump has already taken proactive measures to minimize harm to the U.S.
The core issue between Saudi Arabia and Russia — the number two and three largest oil producers respectively — stems from a significant difference in global pricing needs. After three years of the countries working in concert to boost prices, the U.S. emerged as the top oil-producing nation due to the Trump Administration’s energy independence drive. With the U.S. now a net oil exporter and outpacing both countries, their respective economies appear vulnerable.
According to an analysis by Al Jazeera, the Saudis require oil to run about $82 per barrel. The Russian economy, on the other hand, would chug along far better if oil ran about $42 per barrel. After negotiations failed to achieve common ground about output, the pair appear to be in a bare-knuckled brawl that could result in indefinite price disruption.
The upside for us is that this fight is causing both countries to decimate their own economies by flooding the market. President Trump saw an economic opportunity, seized the moment and ordered millions of barrels of cheap oil.
“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 U.S. strategic reserve,” President Trump said. “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 move comes on the heels of oil industry stocks plummeting on the news of the foreign dustup. Replenishing the reserves helps U.S. oil on several fronts. Buying up the surplus is likely to help buoy oil stocks, which many Americans have retirement and college fund money invested in. It also ensures the country has sufficient emergency oil for an emergency, which has been highlighted by the Coronavirus outbreak.
“It is a fantastic idea. The (Strategic Petroleum Reserve) is one of the few levers that the U.S. can pull in times of oil market tumult,” Again Capital founder John Kilduff reportedly said. “It has served the country well when supplies get tight or otherwise become unavailable during times of natural disasters or geopolitical turmoil. Releases of supplies have served to short-circuit price rallies in the past, and this filling may well serve to ebb the current sell-off.”
It also ensures that the two countries that once produced more oil than the U.S. will have a hard time undermining American energy independence. In a market hit with a glut of oil and logistics being challenging due to the COVID-19 outbreak, U.S. oil now enjoys improved domestic stability.
If the Russia-Saudi oil pricing war drags on, experts predict it could dip to $20 per barrel. That will undoubtedly benefit consumers at the pump and help negotiate the financial end of the current health crisis.
