Oil Drops as U.S Moves to Release Petroleum Reserve
Crude oil prices plummeted by around 4% to below $110 per barrel, with West Texas Intermediate prices falling lower proportionally, early Thursday on news that US President Joe Biden is considering a major release from the country’s strategic petroleum reserves.
The US is looking at releasing 1 million barrels per day and potentially 180 million barrels in total, which is roughly a third of the total strategic petroleum reserves. Brent crude price also sloped downward.
United States decision to flood the market with strategic petroleum reserve could put a cap on international oil prices but widen the Brent/West Texas Intermediate spread, OANDA analyst Jeffrey Halley said in a Wednesday note.
The amount of Russian crude sanctioned from international markets is estimated to be about 3.5 million barrels, according to data. READ: Oil Prices Near 7-Year High on Tight Supply
A release from the US of 1 million b/d over the next six months and the continued production hikes from the Organization of the Petroleum Exporting Countries and allied producers of 400,000 b/d over the same time frame would considerably narrow the output gap from the sanctions by the US midterm elections, Halley noted.
Until the Organisation of Petroleum Exporting Countries and allies (OPEC+) production catches up, the deficit due to Russian sanctions will persist, and oil prices are unlikely to move materially lower, Halley said.
In addition, the energy minister of New Zealand reportedly said the International Energy Agency could announce another coordinated strategic petroleum reserve release at its meeting on Friday, according to Halley.
Meanwhile, the OPEC+ Joint Technical Committee has removed the IEA as their secondary data source, replacing them with Wood Mackenzie. The group is expected to announce that it will stick with its planned 400,000 b/d increase, but if US measures assist in market rebalancing over the coming months, OPEC+ may respond, Halley said.
In a related development, potential massive strategic oil release could deter OPEC from output ramp-up, Commerzbank Says. The specter of a massive release of oil from various strategic reserves across the globe is bound to deter the OPEC and allied producers from ramping up oil output to any greater extent, Commerzbank said in a Thursday note.
Commerzbank previously said it expects the group to raise production further by 430,000 barrels per day, up from 400,000 b/d in previous months as planned. Oil prices are under considerable pressure Thursday morning following news of strategic reserve releases.
In the event of these releases, the oil market would no longer be undersupplied in Q2 and would even be oversupplied in Q3, based on the IEA’s forecasts, Commerzbank said. However, this would seriously deplete state emergency reserves.
In the US, strategic oil reserves are at a 20-year low at roughly 570 million barrels, the bank said. On top of the 50 million barrels already released and another 30 million barrels announced, the 180 million-barrel rumored release would push reserves to their lowest level in almost 40 years, according to Commerzbank.
#Oil Drops as U.S Moves to Release Petroleum Reserve
