Oil prices recover to week-high totals despite US commitment to releasing 50m barrels

Oil prices have rebounded towards $81 on both benchmarks yesterday despite US plans to release 50m barrels of oil from the Strategic Petroleum Reserve.

President Joe Biden’s administration said the reserves will start hitting the market in mid to late December. 

The world’s largest economy is working in concert with China, India, South Korea, Japan and Britain to cool oil prices following multiple rallies and growing political pressure from rising living costs.

High prices, which peaked at over $86 a barrel in October, have been caused by a sharp rebound in global demand, which previously cratered during the pandemic.

The six countries have indicated plans to release strategic reserves into the market.

However, its plans are falling short of expectations, as Brent crude futures soared to $81.76 rising 2.58 per cent, while the WTI Index reached $79.25 per barrel on Tuesday evening.

This follows disputes between Biden and the OPEC+ alliance, who have so far rebuffed repeated requests from Washington to pump more oil.

The United Arab Emirates Energy Minister Suhail Al-Mazrouei said on Tuesday the UAE saw “no logic” in increasing its own contributions to global markets at the moment.

He said technical data gathered ahead of an upcoming OPEC+ meeting in December pointed to an oil surplus in the first quarter of 2022. 

OPEC has already been struggling under its agreement to gradually increase production by 400,000 barrels per day each month.

Craig Erlam, senior market analyst at OANDA, argued Biden’s oil moves were more of a warning shot than a game changer, a “nudge to OPEC+ that they’re not the only ones that have power in the market and that they need to use it responsibly.”

Reacting to the oil price rises, he was unsure releasing the reserves would be effective in the long-term.

He said:  “I don’t think either side wants to engage in a price war and Biden now has his small political win at home ahead of the midterms as he at least looks like he’s doing something about pump prices and is tuned into the difficulties for households. It’s a token effort and we’ll see how effective it will be. But ultimately, the number is clearly at the lower end and only provides short-term reprieve. OPEC+ still holds the key to lower prices.”

Ole Hansen, head of commodity strategy at Saxo Bank, was more critical.

He outlined the market was unimpressed because 18 million of the released barrels from the White House were alread established while the numbers were too small to make a dent.

The political move might also cause OPEC+ to scale back their production increases.

Hansen concluded: “Having already fallen by 10% ahead of the announcement these initiatives will do little to force prices lower. Other initiatives such as an outright ban on US crude oil exports could be a next step, so do not expect a strong bounce either. In short: the only thing Biden has achieved is to make matters worse with opec worse while failing to achieve any reduction in domestic gasoline prices.”