Reversal! Report: Trump administration shels Treasury’s plan to “trade” crude oil futures

# By Li Jia

Source: Wall Street CN

The Trump administration has temporarily shelved the controversial proposal for the U.S. Treasury to directly trade crude oil futures. It is now weighing multiple measures to cool oil prices, including providing insurance guarantees for tankers transiting the Strait of Hormuz, naval escorts, and waivers to fuel-blending requirements. Releasing oil from the Strategic Petroleum Reserve (SPR) is seen as the most direct intervention signal, but it faces practical constraints: inventories stand at just 60% of capacity, while equipment wear-and-tear and a backlog of maintenance work add operational complexity.

Escalating tensions in Iran have driven Brent crude to its largest weekly gain since 2022—surging 17% in a single week—creating political pressure for the Trump administration ahead of the midterm elections. To curb the oil price rally and fulfill campaign promises to lower living costs, the White House is urgently evaluating a range of intervention tools. However, the most contentious option—direct Treasury participation in crude oil futures trading—has been put on hold.

On March 6, Bloomberg reported, citing people familiar with the matter, that the administration had internally discussed authorizing the Treasury to enter crude oil futures markets. Analysts argue the measure would have limited real market impact. Amid the current geopolitical conflict, intraday trading volumes in crude oil futures have exploded, diluting the potential influence of any single participant.

Another potential option—releasing oil from the Strategic Petroleum Reserve (SPR)—also faces hurdles. Under the Biden administration, reserves were drawn down heavily, and current inventories stand at roughly 60% of capacity. Moreover, frequent use has caused equipment degradation and a backlog of deferred maintenance, increasing the operational complexity of any further release.

International oil prices edged lower on Friday. Earlier, Trump hinted at “imminent action” to cool oil prices, while the Treasury announced a temporary waiver for Indian refiners importing Russian crude. According to Bloomberg, the White House continues to weigh multiple options, including providing insurance guarantees for tankers passing through the Strait of Hormuz, organizing naval escorts, and temporarily waiving fuel-blending requirements.

## The Proposal Remains a Concept

As previously reported by Wall Street CN, the idea of direct Treasury intervention in crude oil futures drew intense attention in part due to Treasury Secretary Scott Bessent’s deep financial background. A former chief investment officer at Soros Fund Management and founder of macro hedge fund Key Square Group, Bessent brings decades of experience trading currencies, bonds, and commodities.

Bloomberg, citing insiders, reports the plan has now been definitively ruled out. Earlier, Phil Flynn, senior analyst at Price Futures Group, described it as a “highly creative, out-of-the-box move,” with a potential strategy of “selling the front end of the futures curve and buying the back end” to depress near-month contract prices and calm panic.

Flynn also noted that the Treasury’s traditional mandate focuses on fiscal policy, debt management, and occasional currency intervention—it has never ventured into commodities like oil. Bessent’s trader’s intuition may have spawned this unorthodox idea, but its fundamental misalignment with the Treasury’s statutory duties ultimately kept the proposal in the discussion phase.

## Intervention Plan Faces Skepticism From the Start

Market analysts have broadly doubted the Treasury’s potential direct market entry, arguing that the effectiveness of financial tools is severely constrained by physical fundamentals.

John Paisie, president of Stratas Advisors, pointed out that while the move might temporarily deter speculation by sending a deterrent signal to the market, it cannot resolve the core contradiction: the existential threat of a potential Strait of Hormuz closure, with no spare capacity outside the Gulf to fill the gap. He stated:

“If large volumes of oil supply remain disrupted, financial maneuvers won’t work. Traders will keep betting on higher prices because prices should reflect that shortage.”

Tony Sycamore, market analyst at IG, argued that the oil market is vast and driven by real supply and demand; symbolic actions are unlikely to shift the trend. He said:

“Even if the Treasury steps into futures contracts, it might create a brief pause or scare off some speculative longs—but I doubt the effect would last more than a day or two.”

Ed Meir, analyst at Marex, pointed directly to the core operational risk:

“Selling futures to push prices down is a huge bet. The immediate question is: If prices keep rising and short positions lose money, what do they do? Deliver using the SPR, or keep posting margin and tough it out?”

Ben Hoff, head of commodity quantitative research at Société Générale, called the potential move “unprecedented” and warned that “the devil is in the details.” Market consensus holds that no financial intervention can substitute for a substantive fix to physical supply gaps.

## Multi-Pronged Approach: Insurance Guarantees, Naval Escorts, and Waivers

With the futures intervention plan stalled, the U.S. government is accelerating its evaluation of a range of alternative measures to cool oil prices.

According to Bloomberg, Interior Secretary Doug Burgum revealed on Thursday that the administration is weighing “a range” of responses, covering both short-term emergency measures and complex long-term options. “Everything is on the table,” Burgum said. He is scheduled to meet with Trump in Washington on Friday.

Trump announced two potential actions earlier this week: providing insurance guarantees for tankers transiting the Strait of Hormuz and considering deploying naval escorts to keep crude oil shipping lanes open. Burgum characterized this as an opportunity for the federal government to “establish normal order,” adding that the U.S. is the only nation with both “the financial strength and naval power” to implement such measures. Analysts also note that temporary waivers to fuel-blending requirements are under consideration.

On the reserve front, despite the SPR’s current low inventory and equipment maintenance constraints, Bloomberg reports, citing people familiar with the matter, that even a modest release—if the government decides to act—would send a strong stabilizing signal to the market.

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