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Oil rises 3% to one-week high after U.S. taps emergency reserves

CommoditiesNov 23, 2021 03:10PM ET
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© Reuters. FILE PHOTO: An aerial view shows an oil factory of Idemitsu Kosan Co. in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Mandatory credit Kyodo/via REUTERS

By Scott DiSavino

NEW YORK (Reuters) - Oil prices rose to a one-week high on Tuesday after a move by the United States and other consumer nations to release tens of millions of barrels of oil from reserves to try to cool the market fell short of some expectations.

The United States said on Tuesday it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to cool prices after OPEC+ producers repeatedly ignored calls for more crude.

But analysts said the effect on prices was likely to be short-lived after years of declining investment and a strong global recovery from the COVID-19 pandemic.

Brent futures rose $2.61, or 3.3%, to settle at $82.31, while U.S. West Texas Intermediate (WTI) crude rose $1.75, or 2.3%, to settle at $78.50.

That was the biggest daily percentage gain for Brent since August and its highest close since Nov. 16. It also pushed Brent's premium over WTI to its highest since mid-October.

Talk of a coordinated reserves release, a strong U.S. dollar and a potential hit to energy demand from a fourth wave of COVID-19 cases in Europe has already caused Brent prices to drop over 10% since hitting a three-year high of $86.70 on Oct. 25.

President Joe Biden's administration said it would release 50 million barrels from the U.S. Strategic Petroleum Reserve (SPR), which will start hitting the market in mid to late December.

"The coordinated SPR release was smaller-than-expected and undoubtedly will be met by less production from OPEC+," said Edward Moya, senior market analysts at OANDA, noting "No one would be surprised if (OPEC+) scaled down their production plans."

The OPEC+ alliance between the Organization of the Petroleum Exporting Countries and allies including Russia has 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, adding technical data gathered ahead of an upcoming OPEC+ meeting in December pointed to an oil surplus in the first quarter of 2022.

Analysts said companies that buy oil from the U.S. SPR will have to return it in 2022-2024 when prices are much cheaper than now. Futures were trading around $75 in 2022, $69 in 2023 and $65 in 2024.

"We ... expect a flattening of the curve, as parts of the SPR release will need to be replenished again," said Bjornar Tonhaugen, head of oil markets at Rystad Energy.

The oil rally came ahead of U.S. inventory reports from the American Petroleum Institute (API), an industry group, on Tuesday and the U.S. Energy Information Administration on Wednesday.

Analysts expect the latest weekly U.S. oil inventory data to show a 0.5 million barrel draw from crude stocks.

The dollar index, meanwhile, held near a 16-month high on Tuesday after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that U.S. interest rates will rise in 2022.

A stronger dollar makes oil more expensive for holders of other currencies, which traders said was weighing on crude prices.

Oil rises 3% to one-week high after U.S. taps emergency reserves
 

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Comments (15)
Jo Pa
Jo Pa Nov 23, 2021 1:49PM ET
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Brandon bans local oil production to reduce oil usage, then releases oil reserves to increase oil usage.
Jo Pa
Jo Pa Nov 23, 2021 1:45PM ET
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OPEC will laugh when the US runs out of reserves. Arabs aren't desperate to win midterms.
Warren Wesley
Warren Wesley Nov 23, 2021 1:19PM ET
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let's bring back the oil industry
Warren Wesley
Warren Wesley Nov 23, 2021 1:17PM ET
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oil inventory is for emergency...not price supporting.
Andrew Ulferts
Andrew Ulferts Nov 23, 2021 12:12PM ET
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Yeah, I think now the right thing to do, is to rewrite this headline to say “well that back fired. Biden is clueless.”
Kaveh Sun
Kaveh Sun Nov 23, 2021 9:30AM ET
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Reuters b/s for Biden. Oil is up and Reuters calls steadies
Scott Gramza
Scott Gramza Nov 23, 2021 9:04AM ET
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Release of oil does not mean it is free oil, correct? It is still being paid for by the purchasing companies. So what is the price of that oil vs current market rates? It is market rate which is currently $76-77 per barrel. US oil consumption is currently 19,690,000 barrels per DAY. That is 590,700,000 barrels per month and the release is 50,000,000 which is only 32,000,000 barrels more than pre-planned. The total release is less than 10% of monthly US Consumption. Assuming the oil cost for December averaged $84 per barrel on 540,700,000 barrels and the release of 50,000,000 @ $76 per barrel, the brings cost average from $84 to $83.32 a barrel or less than 1% for one month. Exactly how will this have any long term effect on the price of gasoline at the pump?And then we need to add back to SPR @ what price?This is a short term political move to make it appear to the public that the current administrations are fighting to reduce prices. This is a major error.
Angus Malarkey
Angus Malarkey Nov 23, 2021 7:09AM ET
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Laughable. Transparent political move that will ultimately result in much higher prices. OPEC will wait until all reserves are depleted and then BAM!
ZS Beck
ZS Beck Nov 23, 2021 7:08AM ET
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Just put a price cap, we are turning into a socialist country anyway. 1$/ gallon forever. Do they think this inflation, the wage raises will not come down to oil prices? Soon we will be paying 5$/ gallon.
T Li
T Li Nov 23, 2021 5:17AM ET
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A great way to encourge people consuming more oil
ramesh chand duhoon
ramesh chand duhoon Nov 23, 2021 5:06AM ET
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only way to bring down oil down, use cycle, be fit and cheap crude!
Ankit Jain
Ankit Jain Nov 23, 2021 1:44AM ET
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once their reserve finish than what . then their will be extra demand to fill those reserve again. India has already said that they will not be touching reserve.
Dale Wyffels
Dale Wyffels Nov 23, 2021 12:29AM ET
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why would the US release it's Strategic Resevers when they were energy independent before Brandon? makes no sense but must fit their plan to control the people. nothing this administration has done supports its own economy
Ali Karimzadeh
Ali Karimzadeh Nov 22, 2021 11:22PM ET
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Isnt the lock down and restrictions only for un-vaccinated people?Besides: release of oil reserve will have a temporary effect. They can release only a small percentage of the reserve.
Andrew Ulferts
Andrew Ulferts Nov 22, 2021 11:22PM ET
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Yep, and from the way they make it sound, almost everyone in Europe is Vaccinated.
Bob Daniels
Bob Daniels Nov 22, 2021 11:13PM ET
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Biden going to cause more chaos in oil markets not less. This will end bad. All out of desperation to turn thevtide for 2022 elections.
 
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