Publications: Notes at the Margin

The Trump Put: Ending the Free Market in Oil (January 30, 2017)


The free market in oil is ending. The inauguration of Donald Trump as president will return controls. They are coming soon, although they have yet to be announced. The new controls will benefit firms exploring for and developing and producing US crude oil and natural gas, just as controls applied by individual states from early in the depression to the 1970s protected US oil producers. The effect of the earlier measures was to raise US oil prices at least sixty percent above prices for internationally traded oil.


Investors seem to understand the changing circumstances instinctively, as do many oil market participants. The impacts to date of this understanding include an increase in open interest in crude futures, a rise in speculative open interest, precautionary buying by US firms that depend on imports, and a shift in the pattern of excess returns to storage. These developments have pushed up US and international crude oil prices, and these increases will continue until the form of the coming US protectionist measures becomes clear.


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