Trump Oil Plan No Problem for OPEC

OPEC can rest easy even on the off chance that President Donald Trump’s plan to sell US oil reserves comes to fruition, according to Goldman Sachs Group Inc.

Potential sales from a bid to cut the US Strategic Petroleum Reserve (SPR) by more than half over the next decade would be “negligible” relative to the size of OPEC’s output curbs and the global oil market, the bank said Tuesday. Instead, it would strain logistics on the Gulf Coast where most of emergency stockpiles are located, Goldman said, adding that there’s “high uncertainty on whether such a measure will be adopted,” Bloomberg reported.

Goldman’s view is in contrast to some analysts who predict that the potential sales may undermine efforts by the Organization of Petroleum Exporting Countries and its allies to shrink a global glut and prop up prices.

OPEC and other nations are gathering in Vienna this week to decide whether to prolong a six-month output-cut deal beyond June. Futures in New York rose for a sixth day, trading near a one-month high.

“Local impact would likely prove more important than on the global market, as sharp ramp-up in US drilling and the steady production growth will require new infrastructure capacity, from moving oil to the coasts to increasing exports,” Goldman analyst Damien Courvalin wrote in the report.

The plan to sell 270 million barrels of oil, part of the US president’s budget proposal to cut national debt, suggests the reduction will be in addition to the 185 million barrels of SPR sales already approved by law, bringing the total stockpile volume down to 260 million barrels from the current 685 million, according to Goldman.

That means such sales would only average 110,000 barrels a day annually through 2027, 66,000 barrels a day in 2018-2020 and just 25,000 barrels per day this year, Goldman estimates.

These volumes are “small when put into the context of the size of the oil market and the current OPEC cuts,” Courvalin wrote. He estimates the size of global oil market at 98 million barrels a day and OPEC curbs at 1.7 million barrels a day.

The SPR, established in the wake of the Arab oil embargo of the 1970s, is the world’s largest supply of emergency crude oil. It contains oil in salt caverns and tanks at designated locations in Texas and Louisiana, which allow for distribution when natural disasters or unplanned incidents occur.