Argus Media Limited

11/23/2021 | News release | Distributed by Public on 11/23/2021 12:42

SPR release may draw muted Opec+ response

The Opec+ group is unlikely to change output policy as a result of today's decision by the US to release oil from its strategic reserves, delegates told Argus.

The White House said the US will draw up to 50mn bl of crude from its Strategic Petroleum Reserve (SPR) over the "next several months" in an attempt to lower fuel prices. It is part of a co-ordinated release with China, India, South Korea, Japan and the UK.

Opec+ ministers will have a chance to discuss what, if any, response is required when they meet on 2 December to set January crude quotas, but several delegates have questioned the wisdom of an immediate policy reaction. "I don't see red flags that may pressure Opec+ to stop its release plan as agreed before," one delegate said.

"Opec+ will act, as always, to keep the market balance," said another delegate, adding that the group will have to analyse whether the SPR volumes will be exported or add to the commercial stocks of the issuing countries. A third delegate said Opec+ remains focused on stabilising prices that encourage new investment in the energy sector and is not aiming to "enter into conflict or competition with anyone".

Paris-based energy watchdog the IEA, which has traditionally co-ordinated strategic stock releases by oil-consuming countries, said it recognises the drawdown comes at a time of inflationary pressures and uneven economic recovery. The US has repeatedly threatened an SPR release to try to temper rising gasoline prices, after Opec+ dismissed calls to increase crude production at a faster pace.

The Opec+ roadmap to restore the production that it removed from the market last year entails monthly hikes of 400,000 b/d to April next year, followed by a rise of 432,000 b/d each month until all of the group's original 9.7mn b/d cut is unwound. The plan includes the option for a three-month window during which output increases can be paused to address any sudden market developments, such as the return of Iranian barrels. But this pause is less likely to be used given that infrastructure problems and sabotage have prevented some Opec+ members from hitting their higher quotas in recent months. Argus estimates the group produced 690,000 b/d under its October target.

The group stuck to the roadmap at this month's meeting, sanctioning a 400,000 b/d increase for December. At the time, several Opec+ ministers said they saw supply tightness as temporary and expressed concerns over a potential surplus in the first quarter of next year. Since then, the outlook on demand has deteriorated as several European countries impose fresh restrictions in response to a fourth wave of Covid -19 sweeping the continent. Earlier this week, Austria became the first European country to reintroduce a national lockdown this autumn.

News of the SPR release has not had its intended impact on oil prices. At 18:20 GMT, the front-month January Ice Brent and Nymex WTI crude futures contracts were up by a respective $2.71/bl and $2.10/bl from their settlements in the previous session, with one Opec+ delegate pointing to the price reaction as evidence that the market does not require extra supply.

Before today's announcement, many analysts highlighted that an SPR release may already be baked into prices. UK bank Barclays said today that any release would not have a lasting price impact. "SPR is not a sustainable source of supply and the effect of such market intervention would only be temporary," the bank said.

By Ruxandra Iordache, Nader Itayim and Rowena Edwards