After a rumor that the Biden administration is considering releasing around 1 million barrels per day from its strategic reserves for several months, oil plunged by more than $5 a barrel in minutes.
According to insiders familiar with the plan, the entire release might be as high as 180 million barrels, with an official announcement expected later Thursday. It would be much larger than the US’s recent reserve sales, and allies may join the endeavor, overseen by the International Energy Agency.
Here’s what some of the industry’s leading experts have to say about the impact:
Goldman Sachs Group Inc.
According to economists, including Damien Courvalin, a future release of petroleum from the Strategic Petroleum Reserve would assist the market in rebalancing this year. Still, it would not alleviate the oil market’s structural imbalance. A release might lower the price-induced demand destruction required, but it is not a long-term supply source.
According to Jeffrey Halley, a senior market analyst at Oanda Asia Pacific Pte, the release would assist keep oil prices in check in the medium term. Still, it will not compensate for the loss of Russian oil supplies. In the long run, this means that the US SPR will be significantly decreased when demand rises during the summer driving season in the United States, thereby boosting oil prices.
ClearView Energy Partners LLC
In a research report, Managing Director Kevin Book said, “It’s hard to overestimate the importance of this intervention if it bears out.” It would be the greatest drawdown volume announced in the SPR’s 45-year history, and it would come after the SPR’s second-largest sale, and exchange, a 50 million barrel combined sale and exchange in November.
Given that global demand is expected to surpass supply by 800,000 barrels per day in the second quarter, releasing 1 million barrels per day from the SPR might bring supply and demand closer to balance, barring further interruptions. On the other hand, that would do little to replenish the world’s dwindling supplies.
RBC Capital Markets
According to RBC Capital Markets, the SPR release is being utilized to cushion the impact for US consumers, given the Biden administration’s tough attitude toward Moscow. Russian crude losses are anticipated to be long-term, as the country will likely remain the world’s most sanctioned country for the foreseeable future.
Given that Russian energy losses are likely to rise as the campaign continues and the humanitarian crisis in Europe worsens, it will be vital to observe whether this statement is an effective shock-and-awe approach, it added in a note.
According to Victor Shum, vice president of consulting at S&P Global, the change is likely to be modest, with the main focus remaining on Russian exports. A wide range of outcomes is possible on Russian crude, with up to 7.5 million barrels per day of exports at stake.
For at least a few months, any loss of Russian exports might be compensated for by increased supply from Saudi Arabia and the United Arab Emirates and the release of government-controlled reserves.
From April to December, if Russian shipments fell 3 million barrels per day from pre-invasion levels, that would amount to 825 million barrels, far more than the 575 million barrels currently held in the already-shrinking US SPR, he said.
Previous statements have done nothing to calm the market. Still, according to Suvro Sarkar, an energy analyst at DBS Bank Ltd. in Singapore, the magnitude of the current perspective shift might have a longer-term influence on pricing. The market impact will be determined by how the product is released, whether through direct sales or replacement.
The US now has roughly 570 million barrels in reserve, the lowest level since 2002, and releasing 180 million barrels without a replacement would drop more than 30%. While the announcement may cut prices in the near term, he believes it will increase US demand in the long run to replenish reserves.
If all of the supply comes from the United States, the release will be the greatest ever, according to Warren Patterson, Singapore-based head of commodities strategy at ING Groep NV. Even though it would reduce the nation’s Strategic Petroleum Reserves to their lowest levels since the 1980s, the US will likely push for a synchronized release to have a greater impact on the market.
According to Vandana Hari, founder of Vanda Insights in Singapore, the market needs a steady stream of incremental supply to calm down prices. It’s also critical that the United States is a producer capable of acting, she said, because the US has enough surplus SPR and the infrastructure in place to send 1 million barrels of oil per day to refineries in a reasonable amount of time.
SPI Asset Management
According to Stephen Innes, managing partner at SPI Asset Management, the release might be a game-changer because it compensates for the loss of Russian supplies to US refiners. He added that it remains to be seen whether the measure will be enough to stop the tide of rising prices or change the view that reserve releases are merely band-aids. According to Innes, this unexpected supply boost may temper optimistic sentiments until further facts emerge.
According to Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd., oil prices reacted quickly to the news. However, there is unlikely to be a significant short-term impact on physical markets because the volumes are still small compared to the losses caused by the war in Europe.
The release appears to be substantial compared to past initiatives, but there are scheduling concerns, he added. As demand ramps up, supplies may be compressed in the medium run, resulting in higher prices, according to Hynes.
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