US-led oil release is another wild card for crude markets

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The US Department of Energy will release 50 million barrels of oil from the Strategic Petroleum Reserve as part of ongoing efforts to reduce prices.

Samuel Corum / Bloomberg

Oil prices fluctuated Tuesday morning after President Joe Biden announced that the United States and other countries would release strategic crude reserves in a bid to increase supply and lower oil prices. gasoline.

After initially falling, prices rebounded before 9:00 a.m. Eastern Time as world prices rose about 0.5%. It will take time for investors to assess the impact, as this move is different from previous attempts to influence the price of oil.

On the one hand, the announcement is a last-ditch attempt by a president under political pressure to curb inflation. But it also looks like a larger-scale effort that could spill over into oil markets for an extended period.

Historically, reserve releases like this have only had a short-term impact on prices. But the format of the latest version indicates a bigger shift in the oil market, with oil consumers now attempting to exert the same kind of market power as OPEC-led producers. The release to the United States is a coordinated effort with China, India, Japan, South Korea, and the United Kingdom. The United States and China are the two largest consumers of oil in the world, together using more than a third of all oil produced in the world.

“Today’s historic but highly unorthodox decision is a clear message to OPEC + that it is not the only player on the global oil market scene,” wrote Louise Dickson, analyst at Rystad Markets . “The coordinated effort represents the formation of an informal alliance on the demand side that keeps OPEC + in check if it raises prices to a level considered unsatisfactory to stimulate economic growth and control the purchasing power of consumers. consumers. “

Will this cause oil prices to crater? Probably not. Oil prices and inventories are expected to hold near current levels through the end of the year. The reserve-liberation is not huge in absolute terms. US Department of Energy to release 50 million barrels of oil from strategic oil reserve, White House said in a press release early Tuesday. In total, the world uses just under 100 million barrels a day and the United States consumes about 20 million barrels, so that’s less than three days of demand. Also, the release is expected to occur over several months, so it is unlikely to result in a sudden flood of oil in the market. And it is not yet clear how much oil other nations will release.

All of these factors will influence the trajectory of oil prices.

In recent days, prices have fallen in anticipation of a release of reserves.

In Tuesday morning trading, Brent crude, the global benchmark, was up 0.5% to $ 80.11 a barrel. West Texas Intermediate rose 0.2% to $ 76.90 a barrel. This is a drop from the highs of $ 86 and $ 83 reached in October of this year, respectively.

“This results in weeks of consultations with countries around the world, and we are already seeing the effect of this work on oil prices,” the statement said. “In the past few weeks, as reports on this work became public, oil prices have fallen nearly 10%.”

Shares of major oil companies also rose, both


Shell

(ticker: RDSA.UK) and


PA

(BP) up by less than 1%, and


TotalEnergies

(TTE.France) up 1.3%.

Shares of major U.S. oil companies also rose slightly during pre-trade hours, with


Exxon Mobil

(XOM) up 0.8%.


Chevron

(CVX) stock rose 1%.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC +, have rejected calls to increase production, fearing that current prices could jeopardize the global economic recovery.

Producers may change their tactics to deal with a more aggressive stance from oil consuming countries. OPEC and its allies are due to meet on December 2 to discuss production policy and targets.

Write to Avi Salzman at avi.salzman@barrons.com and Pierre Briançon at pierre.briancon@dowjones.com


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Felix J. Dixon