An analyst told CNBC that although the United States and other major consumers have released millions of barrels of oil from its reserves in an attempt to drive down energy prices, oil prices may climb.
“This will not work just because of the Strategic Petroleum Reserve — no country’s Strategic Petroleum Reserve will try to manipulate prices,” Stephen Shock, editor of the Shock Report, said on CNBC’s “Squawk Box Asia” program on Wednesday.
He explained that the strategic oil reserves exist only to offset short-term, unexpected supply interruptions.
“There are quite a few people betting that we will see oil prices of $100 per barrel,” Schork said, adding that this could happen as early as the first quarter of next year, especially if there is a cold winter in the northern hemisphere.
Quell oil prices
Oil prices have risen by more than 50% this year. As more and more countries get rid of the national blockade and strict restrictions imposed by the pandemic since last year, the supply exceeds demand. As more countries reopen their borders, the resumption of international travel has also boosted demand for aviation fuel.
The global benchmark Brent crude oil broke the psychologically critical threshold of US$80 per barrel in October, and the price has remained near that level. As of Wednesday afternoon in Asia, international contract trading prices were close to US$82.50.
US President Joe Biden announced on Tuesday that the United States will release 50 million barrels of oil reserves as part of the efforts of global energy consumers to quell the rapid rise in fuel prices. Among them, 32 million barrels will be traded in the next few months, and 18 million barrels will accelerate previously authorized sales.
Other countries that have made joint commitments include China, India, Japan, South Korea and the United Kingdom.
So far, the UK has agreed to release about 1.5 million barrels of oil, while India has pledged to release 5 million barrels of oil. China, Japan and South Korea have not yet released specific figures.
“We are talking about 50 million barrels of oil from the United States, and possibly 50 barrels of oil from our partners. That is 100 million barrels of oil-this is the world’s daily demand for crude oil,” Shock said.
Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank of Australia, has a more conservative estimate. He predicted in a report on Wednesday that the amount of oil released by the six oil-consuming countries may be “slightly higher than 70 million barrels” because the release of oil stocks in other countries may be “relatively moderate.”
According to data from the U.S. Energy Information Administration, 97.53 million barrels of oil per day are consumed globally this year, up from 92.42 million barrels per day in 2020. By 2022, this number will rise to 108.8 million barrels per day.
“This is a clear sign of despair. This is the only tool in the box. It will not work. I believe the market will think that the United States is bluffing in this regard. We may see higher prices instead of lower prices for a month. Later,” Shock said.
He added that the United States should consider bringing American producers to the negotiating table and require them to increase production to offset supply imbalances.
The Federal Bank’s Dahl said the rebound in oil prices on Tuesday showed that “the market is disappointed with the coordinated release of the strategic oil reserve.”
Showdown with OPEC+
Although crude oil prices have climbed to multi-year highs and the United States has applied pressure to help cool the market, OPEC and its oil-producing allies have decided not to increase oil production. This is the latest development.
According to its current production plan, the organization called OPEC+ will gradually increase oil production by 400,000 barrels per day per month. They are scheduled to meet again next month.
The oil well pump jack operated by Chevron on Tuesday, April 27, 2021 in San Ado, California, USA.
David Paul Morris | Bloomberg | Getty Images
“So far, there is no sign that OPEC+ is reconsidering its plans,” Eurasian Group analysts said in a report dated November 22 before Biden’s overnight announcement. They stated that the large-scale release of oil consumer inventories before the OPEC+ meeting may prompt the organization to take countermeasures, leading to a “destructive deadlock.”
Eurasian Group analysts said: “In this case, the countervailing measures of both parties may lead to increased volatility, leading to fluctuations in oil prices and increasing uncertainty.”
They added: “This will neither reduce consumer price pressures nor provide producers with the stability needed to ensure stable and reliable supply to the global economy that is still struggling to deal with the worst epidemic in a century. .”
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