[UPDATED ANALYSIS] US is poised to release oil from its reserve along with other nations; an announcement could come as soon as today

Analysis details (11:02)

THE LONG AND SHORT: In a bid to reverse the recent surge in gasoline prices, the Biden administration is expected to announce the release of oil from its Strategic Petroleum Reserves (SPR), potentially in coordination with other nations including China, Japan, and India – with inflation concerns being the common denominator. The move also comes in reaction to OPEC+ flouting calls by large oil consumers, particularly the US, to further open the taps beyond the group’s planned 400k BPD/m hikes. A source cited by Politico caveated that a final decision is yet to be made, and US officials are hoping that the threat of an SPR release would persuade OPEC+ to double their quotas.

THE BREAKDOWN:

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  US: Sources suggested the US is expected to release between 30-35mln barrels over time, with prior sources suggesting it could be take the form of a sale and/or loan from the reserve. Reports yesterday stated that US Energy Department will announce a loan of oil from the SPR on Tuesday with the release to be coordinated with several countries.


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  CHINA: China’s State Reserve Bureau last week said it is working on the release of oil reserves but made no mention of a coordinated move with the US. The magnitude and timings are still vague. "China could offer help to the US by releasing its own crude oil reserves to a certain extent, but should take a cautious approach, considering its own crude reserves are not sufficient, experts say.", according to Global Times. The first reserves release was completed on September 24th as factory gate prices took a toll on the nation. According to S&P Global, “PetroChina and Hengli Petrochemical (Dalian) said to have been awarded 4.43 million barrels of crude at the notional prices offered by the administration, with 2.95 million barrels of Murban failing to find a buyer.” There has been no announcement since. S&P Global suggests that up to a 40mln barrels release was expected this year across three auctions. SGH Macro Advisors, citing Chinese sources, stated that China's current stockpile (including SPR, state and private commercial crude) remained north of 140 days of net imports. For reference, the next Chinese inflation metrics will be released on December 9th.


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  JAPAN: Japanese PM Kishida over the weekend telegraphed his readiness to release stocks. Japanese private companies (including refiners) have an SPR holding of some 175mln barrels, consisting of crude and oil products. A magnitude has not yet been touted, as a member of the International Energy Agency (IEA), “Japan is obliged to maintain oil reserves equal to 90 days of net imports of the previous year, while the number of private emergency stocks should be more than 70 days of its oil consumption in the previous year.”, according to Kyodo.


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  INDIA: India holds about 26.5mln barrels of oil in its SPR, according to reports. Coal-reliant nations such as India and China are also under global pressure to transit into less environmentally harmful energy sources, with oil likely to be used in the interim before nuclear and renewables. India is to reportedly announce a decision on reserves release today, with some suggesting a release of around 5mln barrels.

OPEC+ RESPONSE: According to delegates, OPEC+ may adjust plans if nations' oil reserves are released. As it stands, Energy Intel journalist Bakr noted that she has not heard anything from OPEC+ officials about changing production plans. Meanwhile, the UAE Energy Minister said technical data suggests a surplus in Q1 and there is no logic in increasing its contribution, and does not see the need for OPEC to adjust output plans. The Secretary-General of the International Energy Forum (IEF) on Monday said, "In light of current IEA, OPEC and EIA forecasts for a surplus in the first quarter next year, I anticipate OPEC-plus energy ministers will maintain their current plan of adding more supplies to the market gradually. However, certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions," he added. It is unclear what OPEC+ may opt to do, but it is clear the COVID situation in Europe could be utilised as a scapegoat to avoid further friction with oil consumers. The group has three feasible options: 1) maintain current plans, 2) defer one or more hike(s), 3) lower the output quotas. Russia's Kremlin said President Putin has no plans to contact OPEC+ partners, despite possibility of major consumer countries releasing strategic oil.

OTHER POTENTIAL MEASURES: It is worth being cognizant of the non-zero chance of a temporary US export ban, with the US Energy Secretary Granholm calling it a “tool”, and House Democrats on Monday urging the President for an SPR release alongside an oil export ban. That being said, energy analysts highlight that holding US oil will only build up stock as different crude blends will be needed to meet demand. Note, some US lawmakers remarked that they should not tap the SPR and the initial report has been followed by officials stressing that no decision has been made and all options remain under consideration.

HOUSE VIEWS:

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  Citi analysts suggested the US could release between 45-60mln barrels, which would bring forward about 20mln in already approved sales.


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  Goldman Sachs on Monday said the magnitude of the global deficit is sufficient to absorb perceived headwinds.


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  PVM wrote in a recent note, "Flooding the market with extra barrels from inventories is no equivalent to releasing them from the ground. The former has to be replaced some time in the future and therefore its effect should be brief."

23 Nov 2021 - 11:01- Research Sheet- Source: Newsquawk