The black liquid is down in the Asian session today with Brent oil, the global benchmark, trading below the $80 range. This bearish movement in the price of oil is as a result of a Reuters report which suggests growing expectations that the United States, one of the world’s oil top consumers, is set to announce a coordinated release of strategic oil reserves today. The Reuter’s report reads, “The United States is expected to announce a loan of crude oil from its emergency stockpile on Tuesday as part of a plan it hashed out with major Asian energy consumers to lower energy prices, a Biden administration source familiar with the situation said.”
Japan, India and South Korea are expected to partake in what many are calling a ‘coordinated release’ of oil reserves, in a bid to tame prices despite the threat of demand faltering as COVID-19 cases flare up in Europe.
What you should know
The Reuters report explains that the move by the United States is a result of U.S President Joe Biden’s low approval ratings following high prices of gasoline and other consumer items in the recovery from the coronavirus pandemic, which poses a threat to him and his Democratic Party ahead of next year’s congressional elections. The Reuters source stated, “A so-called ‘swap’ from the U.S. Strategic Petroleum Reserve (SPR) will be announced on Tuesday in a move coordinated with several countries.” The source did not specify how much oil would be released from the stockpiles.
Reuters also reported that President Biden has already asked China, India, South Korea and Japan to release strategic oil stocks in concert with the United States. Japanese and Indian officials are working on ways to do that. India is reportedly yet to decide on both the timing and volume of its contribution, while Japan has determined it can tap its surplus stockpiles legally but also did not specify a timeline for a release.
The talk of a coordinated crude oil release has caused oil bears to push both benchmarks below the $80 a barrel range. However, oil bulls are confident, as they are turning their attention to the potential hit to demand from a fourth wave of COVID-19 cases in Europe and expect an actual release will only have a temporary impact on the price of oil.
What they are saying
ING Group’s head of commodities strategy, Warren Patterson told Bloomberg that, “A 35-million-barrel release from the U.S. would be significant. Once you consider potential volumes from others, we are looking at something pretty substantial. The risk of further COVID-19 related restrictions this winter and potential SPR releases might be enough to persuade OPEC+ to pause supply increases.”
Rystad Energy analyst Louise Dickson told Reuters that, “As Europe, and in particular Eastern Europe struggles to halt the spread of COVID-19, the risk of lockdown-like measures looms large. If a new wave of lockdowns is enacted in Europe, oil prices will not be spared during the remainder of the flu season in the North Hemisphere.” She further explained that the demand in November for road and jet fuel in Europe is expected to fall to 7.8 million barrels per day (bpd) from 8.1 million bpd in October, although part of that is a normal decline for this time of year.
Commonwealth Bank of Australia analyst, Vivek Dhar explained that the impact of a coordinated oil release would depend on the timeframe and quantity, but a release of more than about 60 million barrels in around 30 days would be seen by the market as “very negative for pricing.” He further added, “This situation is coming at a time when this market was shifting and global oil stockpiles are rising. So this could see prices fall more steeply than you think.”
Read more at: https://nairametrics.com/2021/11/23/oil-down-as-u-s-is-set-to-launch-coordinated-emergency-crude-oil-release/
