Page 4 - EurOil Week 48 2021

EurOil COMMENTARY EurOil

Nations co-ordinate SPR release

Six nations co-ordinated releases from their strategic petroleum reserves

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

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