Oil Prices Rise Despite US Move to Release 50m Barrels From Reserves
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The US has released 50 million barrels of crude form its strategic petroleum reserves stockpile in an attempt to rein back oil prices.
However, if the reaction in the markets is anything to go by, the first round in what looks like a fight with OPEC+ has been lost by the US – oil prices have risen in response to the move.
High oil prices are leading to inflationary pressures, which could begin to harm economic recovery, leading to fears in some quarters that the global energy crisis could lead to stagflation.
The US move has been co-ordinated with other countries that are large consumers of oil, although their contributions are substantially less than those of the US.
China, Japan, India, South Korea and the UK are co-ordinating with the US. It is understood that the UK will be releasing 1.5 million barrels and India 5 million barrels, although it has not been confirmed over what period of time.
Oil traders seem to be non-plussed by the announcement. On the one hand the release by the US is smaller than expected and will be spread out over a period of time and includes some previously flagged sales, while on the other OPEC+ may respond by holding back on supply increases.
Oil company stocks have been beneficiaries from the rise in crude prices.
US SPR release not as large as hoped for
The first release from the strategic petroleum reserves (SPR) reserves will not take place until mid December and will continue for the next several months. 18 million barrels of the total has previously been authorised but their release will now be speeded up.
The two international benchmarks were both trading higher after initially falling on the news, with WTI up 2.2% at $78.43 and Brent 3% higher at $82.
Bob McNally, president of consultant Rapidan Energy Group said: “The market focus has shifted from the release to how OPEC+ will respond to what the White House is calling a ‘message to the Saudis’” .
He added: “If it comes to a test of wills and capabilities between a handful of strategic oil reserve holders led by the US and OPEC+, the market would probably bet on the latter prevailing.”
US intervention in oil markets “likely to backfire”
McNally thinks the US intervention in the markets will fail to deliver the desired results. “A co-ordinated raid of emergency stockpiles absent a geopolitical disruption — and intended to influence global oil prices — is a fateful energy policy precedent that is likely to backfire,” he said.
President Biden has ordered the release from oil reserves as he seeks to combat inflation that has hit 6.2%, the highest level in 30 years.
The White House is under pressure to bear down on the cost of living and oil prices are big component of that, feeding into prices at the pump and heating oil, not to mention how it adds to costs across the economy by raising energy prices for manufacturers and making transport by road more expensive.
Prices at the pump are up 60% over the past 12 months.
Last week the Biden administration asked the Federal Trade Commission to investigate and clampdown on alleged price gouging in the gasoline sector.
