A general view shows the Marathon Petroleum oil refinery, following the Russian invasion of Ukraine, in Anacortes, Washington, on March 9, 2022.
David Ryder | Reuters
LONDON – Oil prices fell sharply on Thursday after reports that US President Joe Biden is considering releasing up to 180 million barrels from the country’s Strategic Petroleum Reserve (SPR).
Biden will make remarks later Thursday, with multiple outlets reporting that the plan to cool rising crude prices will involve the release of around 1 million barrels of oil per day for several months.
international benchmark Brent Crude Futures for May fell about 5.1% to $107.68 a barrel at around 11am London time, paring earlier losses. american crude futures for May delivery fell 6.1% to $101.25 a barrel.
Gasoline prices have risen to record highs on Russia’s invasion of Ukraine and subsequent supply concerns, sending inflation spikes across the global economy.
Russia is the world’s second-largest oil exporter, and unprecedented punitive international sanctions that followed the invasion have disrupted outflows from the country.
In a research note on Thursday, Goldman Sachs commodity analysts said the reported release of US reserves would help the oil market rebalance in 2022, but would not resolve its structural deficit.
“This would reduce the necessary amount of price-induced demand destruction, the only oil rebalancing mechanism currently available in a world with no inventory reserves and no elasticity of supply,” Goldman Sachs said.
“However, this would still be a release of oil inventories, not a persistent source of supply for years to come. Therefore, such a release would not resolve the structural supply deficit, which has been brewing for years.”
They added that lower prices in 2022 would support oil demand while slowing the acceleration of US shale production, leaving a shortfall in 2023 and a likely need to replenish US reserves.
The International Energy Agency will hold an emergency meeting on Friday to discuss oil supply concerns, Australian Energy Minister Angus Taylor announced on Thursday.
The Organization of the Petroleum Exporting Countries and its allies, including Russia (known as OPEC+), are also due to meet later on Thursday and are expected to maintain their existing agreement to slowly increase production, after cutting it substantially during the Covid-19 pandemic. 19 and the associated fall. in demand.
A ‘risky strategy’
Ed Bell, senior director of market economics at Emirates NBD, told CNBC on Thursday that despite the record scale of the expected SPR launch, a huge drop in the immediate aftermath would be unlikely.
“Markets will continue to be very supply-focused going forward and the lack of it that we will see from Russia, the incremental additions that we will see from OPEC+ and so far the real lack of price response from US producers to high prices.” Bell told CNBC’s “Capital Connection.”
“Long-term though, I think this is a bit of a risky strategy for the US to lower their SPR that much if they think we’re going to get into the peak summer months in the US. America, we’re going to lower inventories just when we are going to need them at a time of uncertain supply conditions.
Bell added that if the oil market runs a structural deficit for an extended period, the drawdown in US reserves could “help support a bull case for oil prices” over the next 12 to 24 months.