When President Biden announcement earlier this week that the federal government would release 50 million barrels of crude from the strategic oil reserve, perhaps those around it expected prices to drop significantly and stay low. Instead, prices rose and OPEC + hinted that it might reduce supply. Oil prices fell sharply on Friday, but that was due to a new wave of Covid-19 fears and has little or nothing to do with Biden’s announcement that oil would be released from emergency stocks.
But what comes next could send $ 100 oil.
Energy analysts have warned that a release of SPR may not have the desired effect. They explained that no matter how many barrels the US or its partners in Asia and the UK release, OPEC could hold more and longer. They explained that SPR crude is acidic and refiners don’t like it because it requires additional processing to reduce the sulfur content, a process that requires natural gas, which is also expensive now. These explanations fell on deaf but determined ears. Now analysts are warning of Brent’s $ 100.
“It won’t work just because the strategic oil reserve – a country’s strategic oil reserve is not there to try to manipulate prices,” said Stephen Schork, editor of the Schork Report, Speaking to CNBC earlier this week. “There’s a lot of betting that we’ll see $ 100 a barrel of oil,” he added.
John Kilduff of Again Capital put it even more bluntly: “The battle lines are being drawn,” he said. Recount Bloomberg this week. “Certainly OPEC and the Saudis can win that as long as they hold all the cards. They can keep more oil on the market than an SPR version can put on the market. If you see WTI going downhill. below $ 70, then I would expect a response from OPEC +. “
In addition, the planned release of these 50 million barrels will not happen overnight. It won’t happen in a week either. In fact, the plan is, according to an Argus report, offer long-term loans of up to 32 million barrels of SPR crude – sour crude, on top of that – and sell an additional 18 million barrels over several months. For starters, there is no guarantee on the extent to which oil loans are used. For a few seconds, 18 million barrels over a few months is less than 1 million barrels per day on average. Related: Oil Nations Sell Billions Of Green Bonds
Meanwhile, OPEC is bracing for a worst-case scenario that involves the release of a total of 66 million barrels in January and February. The cartel itself seems to be aware that the chances of this kind of oil flooding happening are almost nonexistent, given America’s plans, but the important thing is that they prepare. And, according to OPEC sources who spoke to Argus, while most members of the extended OPEC + group feel they don’t need to change the original deal to add 400,000 bpd to the daily production, there is a stipulation that allows a three month break in these additions.
OPEC alone represents 40 percent of world crude oil production. The United States, the world’s largest producer, accounts for approximately 18.6 percent. And then there’s Russia, with around 12% of the world’s oil supply, which is an OPEC partner. Together, OPEC and Russia, not even counting Central Asian producers, account for half of world oil production. They indeed hold all the cards.
Oil prices, CNBC notes in a recent report, have risen by around 50% since the start of the year, as demand has rebounded much faster and more strongly than anyone seems to have expected, while supply remained tight as the industry cautiously moved forward in the new pandemic landscape.
This week, prices have fallen dramatically on news of the identification of a new variant of the coronavirus in South Africa, but the news is unlikely to have a lasting effect.
Meanwhile, true to itself, the International Energy Agency has berated OPEC for what its leader, Fatih Birol, called “an artificial seal.”
??[A] The factor that I would like to highlight that caused these high prices is the position of some of the major suppliers of oil and gas, and some countries have not, in our opinion, taken a useful position in this context, “said Birol. this week, as quoted by CNBC.
“In fact, some of the main tensions in today’s markets can be seen as artificial tension … because in oil markets today nearly 6 million barrels per day of unused production capacity falls on major producers. , the OPEC + countries “, he added. added.
The IEA was created to monitor the oil markets in an attempt to avoid a repeat of the severe shortage that hit the West after much of the Middle East imposed an oil embargo on Israeli allies. Since then, however, particularly in recent years, the agency has increasingly focused on the green energy transition, calling earlier this year for the suspension of all new oil investments, to urge producers for a few more months. late to invest more in new productions.
OPEC + has so far resisted all calls for more oil production. The cartel has made it clear that it will do whatever it chooses and not stand up for anyone else’s interests. Right now, OPEC + is interested in rising oil prices. The group appears worried about further outbreaks of Covid and cited this risk as a demand constraint that justifies their moderate increase in production. Now, on top of that worry, they have this 50 million US barrels of crude. The next OPEC + meeting could bring a nasty surprise to big oil consumers, and that nasty surprise could push up prices.
By Irina Slav for Oil Octobers
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