The U.S. Department of Energy will release 50 million barrels of oil from the Strategic Petroleum Reserve as part of an effort to lower prices.
Samuel Corum/BloombergOil prices fluctuated early Tuesday after President Joe Biden announced the U.S. and other countries would release strategic crude reserves in an effort to increase supply and force gasoline prices lower.
After initially falling, prices rebounded before 9 a.m. Eastern Time, with global prices up about 0.5%. It will take time for investors to gauge the impact, because 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 tamp down inflation. But it also looks like a more far-reaching effort that could ripple through oil markets for an extended period.
Historically, releases of reserves like this have had just a short-term impact on prices. But the format of the latest release points to a larger shift in the oil market, with oil consumers now attempting to exert the same kind of market muscle as producers led by OPEC. The U.S. release is a coordinated effort with China, India, Japan, South Korea, and the United Kingdom. The U.S. and China are the top two oil consumers in the world, together using more than a third of all the oil produced in the world.
“Today’s historic but very unorthodox move is a clear message to OPEC+ that it’s not the only actor on the global oil market stage,” wrote Rystad Markets analyst Louise Dickson. “The coordinated effort represents the formation of an unofficial demand-side alliance that keeps OPEC+ in check if it fires up prices to a level seen as unsatisfactory to spur economic growth and keep consumer purchasing power in check.”
Will it cause oil prices to crater? Probably not. Oil prices and stocks are likely to hold near current levels through the end of the year. The reserve-release is not huge in absolute terms. The U.S. Department of Energy will release 50 million barrels of oil from the Strategic Petroleum Reserve, the White House said in a release early Tuesday. In total, the world uses just under 100 million barrels a day, and the U.S. consumes roughly 20 million, so it represents less than three days worth of demand. Also, the release is expected to occur over multiple months, so it’s unlikely to result in a sudden flood of oil coming onto the market.
It’s not yet clear exactly how much oil the other nations will release. RBC Capital Markets analyst Helima Croft says that the total release is likely to be about 65 million to 70 million barrels. The timing and magnitude of those releases could influence the trajectory of oil prices.
In recent days, prices have been falling in anticipation of a reserve release, which may have muted the impact of the official announcement. On Tuesday morning, Brent crude, the global benchmark, was up 0.5%, to $80.11 a barrel. West Texas Intermediate was up 0.2%, to $76.90 a barrel. That is down from highs of $86 and $83 reached in October this year, respectively.
Shares in big oil companies were ticking higher, with Shell (ticker: RDSA.UK) and BP (BP) up less than 1%, and TotalEnergies (TTE.France) up 1.3%.
Shares of U.S. major oil companies were also up, with Exxon Mobil (XOM) rising 1.7% and Chevron (CVX) up 2%.
The White House said in its statement that the impact of its actions was already being felt.
“This culminates weeks of consultations with countries around the world, and we are already seeing the effect of this work on oil prices,” the statement said. “Over the last several weeks as reports of this work became public, oil prices are down nearly 10%.”
All eyes are now on the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+. They have rebuffed calls to increase production amid concerns that the current prices will compromise the global economic recovery. There is a chance that the producers will change their tactics — perhaps even pause production increases — to deal with a more aggressive stance by oil-consuming countries. They are due to meet on Dec. 2.
Write to Avi Salzman at avi.salzman@barrons.com and Pierre Briançon at pierre.briancon@dowjones.com
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