Biden’s oil reserve release represents about 2-3 days of consumption globally: Analyst
The U.S. believes it has the ability to release more oil from its reserves if prices rise further, RBC Capital Markets analysts said.
The world’s largest economy took action with other key consumers Tuesday, but crude prices rallied after the announcement. The Biden administration wants to keep prices below US$80 “and believe they have the ability to do another release of a similar magnitude,” analysts, including Helima Croft, wrote in a report.
Any such release would be through an exchange mechanism -- the same system that covers 32 million of the 50 million barrels the White House said would be released. While such moves can temper prices in the short term, the barrels have to be replaced, potentially boosting consumption down the line.
The U.S. acted with five other major consumers to release strategic oil supplies in an effort to bring down prices. The unprecedented move had been widely expected by the market, with Brent crude rallying as much as 2.8 per cent to US$81.93 after the announcement.
RBC also said:
- The U.S. is keenly focused on reducing gasoline and diesel prices ahead of the holidays but also sees SPR releases as part of a plan to deal with inflationary pressure
- Next week’s OPEC+ meeting will be crucial in determining the efficacy of Tuesday’s announcement
- It’s most likely that OPEC+ will stick with its existing plan to proceed with output increases next week, but Saudi Arabia may push to scale back the plan