Page 6 - DMEA Week 47 2021

DMEA COMMENTARY DMEA

Co-ordinated SPR release confirmed

The US has teamed up with China, India, South Korea, Japan and the

UK to co-ordinate releases from their strategic petroleum reserves.

GLOBAL THE US announced this week that it would that a combined 71.5mn barrels could be
release 50mn barrels of crude from its strate- released by all the countries jointly. Meanwhile,
gic petroleum reserve (SPR). The move will be investment bank Goldman Sachs estimated
WHAT: co-ordinated with China, India, South Korea, crude reserve releases from South Korea, Japan,
The US, China, India, Japan and the UK in a bid to provide relief from China, India and the UK to total up to 30mn bar-
South Korea, Japan and oil prices that recently reached their highest level rels, which would bring the total, including US
the UK have agreed to in seven years. volumes, to up to 80mn barrels. This is the first
jointly release crude from The initiative comes after the OPEC+ group time the US has co-ordinated such a move with
their SPRs. has ignored repeated calls to lower crude prices some of the world’s largest consumers of crude.
by releasing more oil into the market. The group (See NorthAmOil Week 46) It puts pressure on
WHY: recently opted to maintain its current output OPEC+ to deviate from its chosen strategy and
The move comes as an plan, which entails scaling up production by only threatens to upset oil geopolitics.
attempt to rein in high 400,000 barrels per day (bpd) each month until
oil prices after OPEC+ the end of 2022. Thus far, OPEC+ has shown Impact questions
ignored repeated calls to no signs of altering its plan, but this could now However, the impact of the co-ordinated release
help lower prices. change in the wake of the joint SPR release. on the oil market has been questioned, and
Now, though, the US has said that up to 32mn Argus Media suggested that markets had been
WHAT NEXT: barrels would be released from its SPR over the anticipating a larger release.
The SPR release may coming months through an exchange, while the Rystad, meanwhile, said that if the plans
have less of an impact timeline for a previously approved outright sale translated into an average supply addition of
than the countries of 18mn barrels would be accelerated. 1.2mn bpd over a two-month period starting in
involved are hoping for. “We will continue talking to international mid-December, that would be “not immaterial”
partners on this issue. The president stands in a market of 80mn bpd. However, it added that
ready to take additional action if needed, and with the US swapping 32mn barrels rather than
is prepared to use his full authorities working selling them outright, much of the extra supply
in co-ordination with the rest of the world,” a released onto the market would be temporary,
senior official in the administration of US Pres- simply “shifting the timing of the market dynam-
ident Joe Biden stated. Deliveries of SPR crude ics further down the road”.
will take place over January-April 2022, with The consultancy added that it had already
early deliveries accepted in late December 2021. anticipated the market tipping into surplus in
Under the exchange arrangement, oil companies February 2022, and that the US-led release could
taking crude released from the SPR must return bring this forward to December. “The release
it, which has been scheduled for 2022-24. Such may be a case of too much, too late, as the oil
swaps are typically offered when oil companies market was tightest and needed supply relief in
face supply disruptions, such as pipeline outages September,” Rystad’s senior oil markets analyst,
or damage from extreme weather, while outright Louise Dickson, wrote in a market comment.
sales of SPR crude are less common. In addition, the Wall Street Journal reported
on November 24 that certain members of
Joint release OPEC+, including Russia and Saudi Arabia,
Biden has been seeking to agree on a joint release are considering pausing their gradual supply
for weeks, and his efforts have borne fruit, to scale-up. Citing sources familiar with the matter,
some extent. However, the US accounts for the the newspaper said that other members of the
largest volumes set to be released by far, while group are not convinced that a pause is neces-
the contributions of other countries look set to sary. But Rystad also pointed to increased expec-
be small in comparison. tations in the market that OPEC+ could move
China said last week that a second release to counteract the SPR release. “The bold move
from its SPR was in the works. India has said it from the oil importers has opened the door
would release 5mn barrels, and the UK said it wide open for OPEC+ to adjust its supply policy
would allow the voluntary release of 1.5mn bar- downwards at its next December 2, 2021 [meet-
rels from privately held reserves. The Japanese ing],” Rystad said. The consultancy anticipates
government said on November 24 that it would that spot price premiums are what may be most
release several million barrels, though it did not affected by additional oil volumes being released
specify volumes, and South Korea also said it onto the market. But it noted that both deferred
would participate in the joint release without prices and the price level in the market itself also
providing specific numbers. depend on what approach OPEC+ takes at its
Consultancy Rystad Energy has estimated next meeting.™

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