Oil price against $ 100 despite US attempts to free up reserves: Analyst

Oil prices could climb higher despite the US and other large consumers releasing millions of barrels of oil from their reserves to try to keep energy prices down, an analyst told CNBC.

“It’s not going to work simply because the strategic petroleum reserve – any country’s strategic petroleum reserve is not there to try to manipulate the price,” Stephen Schork, editor of Schork Report, said on Wednesday on CNBC’s “Squawk Box Asia.”[ads1];

Strategic petroleum reserves exist only to compensate for short-term, unexpected supply disruptions, he explained.

“There’s a significant amount of play out there that we’ll see $ 100 a barrel of oil,” Schork said, adding that it could happen as early as the first quarter of next year, especially if it’s a cold winter in the northern hemisphere.

Calm oil price

Oil prices have jumped more than 50% this year, with demand exceeding supply as more countries emerge from national shutdowns and strict restrictions imposed since last year due to the pandemic. The resumption of international travel as more nations reopen their borders also increases the demand for aviation fuel.

Global benchmark Brent exceeded the key psychological limit of $ 80 per barrel in October, and prices have remained close to that level. As of Wednesday afternoon in Asia, the international contract traded close to $ 82.50.

It is a clear sign of desperation that this is the only tool in the box and that it will not work.

Stephen Schork

editor of the Schork report

US President Joe Biden announced on Tuesday that the US will release 50 million barrels from its reserves as part of a global effort by energy-consuming countries to curb the rapid rise in fuel prices. Of that amount, 32 million barrels will be an exchange over the next few months, and 18 million barrels will be an acceleration of a previously authorized sale.

Other countries that committed jointly include China, India, Japan, South Korea and the United Kingdom.

So far, the UK has agreed to release around 1.5 million barrels while India has committed to 5 million barrels. China, Japan and South Korea have not yet announced specific figures.

“We are talking about 50 million barrels coming out of the United States, potentially another 50 from our partners. That is 100 million barrels of oil – that is one day’s value of a global demand for crude oil,” said Schork.

Vivek Dhar, a mining and energy commodity analyst at the Commonwealth Bank of Australia, was more conservative in his estimates. He predicted in a Wednesday note that the number of barrels discharged from the six oil-consuming countries could be “just north of 70 million”, as the release of oil stocks from the other countries can be “relatively tame”.

The world consumed 97.53 million barrels of oil per day this year, up from 92.42 million barrels per day in 2020, according to the US Energy Information Administration. By 2022, this number will rise to 100.88 million barrels per day.

“It’s a clear sign of desperation that this is the only tool in the box and it’s not going to work. I think the market will say the US bluff on this and we’ll probably see higher prices instead of lower prices a month from now. , “said Schork.

Under such conditions, conflicting moves from each side are likely to lead to increased volatility, produce crude oil prices and increased uncertainty.

The United States should consider bringing US producers to the table and asking them to increase production to offset supply imbalances, he added.

The Commonwealth Banks Dhar said a rise in oil prices on Tuesday indicated that “markets were overwhelmed with the coordinated release of strategic oil reserves.”

Settlement with OPEC +

The latest development came after OPEC and its oil-producing allies decided not to pump more oil despite crude oil prices climbing to several-year highs and US pressure to help cool the market.

Under its current production schedule, the group, known as OPEC +, will gradually increase oil production by 400,000 barrels per day each month. They will meet again next month.

Oil well pump jacks operated by Chevron Corp. in San Ardo, California, USA, Tuesday, April 27, 2021.

David Paul Morris | Bloomberg | Getty pictures

“So far, there have been no signs that OPEC + is reconsidering its plan,” Eurasia Group analysts said in a note dated November 22, before Biden’s announcement overnight. A large-scale share issue from oil consumers before OPEC + meets could lead to a backlash from the group, resulting in a “disruptive standoff,” they said.

“Under such conditions, conflicting moves on either side are likely to lead to increased volatility, producing crude oil prices and increased uncertainty,” said Eurasia Group analysts.

“This will neither dampen consumer price pressures nor provide manufacturers with the necessary stability to ensure a steady and reliable supply to a global economy that is still struggling with the worst pandemic of a century,” they added.

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