Energy inflation , and therefore the price of oil , remain protagonists in the framework of the war in Ukraine caused by the Russian invasion.
The news leaked by the international media, in fact, tells of a strategic plan on the release of crude oil from the reserves that just today, March 31, Joe Biden is about to announce.
Fighting rising gasoline prices and supply shortages following the Russian invasion of Ukraine has become a priority for all world economies, including the US.
What is the potential release of oil from US strategic reserves and what does it mean for the global oil market ?
US is about to release oil from reserves: what consequences?
The indiscretion bounces on the world media this morning: the Biden administration is considering a plan to release about one million barrels of oil a day from US reserves, for several months.
The total release could reach up to 180 million barrels , the largest in the nearly 50-year history of US reserves.
The White House said that President Joe Biden will speak today about his efforts to reduce energy prices and “lower costs at the pump for American families” , which have soared to record levels also due to the aggression against Ukraine decided by the Russian President Vladimir Putin.
Biden is under pressure to slow the pace of inflation – and cut gasoline prices in particular – as the US mid-term elections approach in November. The president has already ordered two major releases of oil from US reserves in the past six months: 50 million barrels in November and another 30 million barrels in March, following the invasion of Russia. Previous releases had a muted effect: Average US pump prices rose after the administration began discussing its first release last fall.
The White House is also struggling to get OPEC nations to increase production enough to reduce prices. The cartel meets today, March 31, to decide on the next production of crude oil to be put on the market but does not seem willing to increase its volume beyond 400,000 bp per day.
” US oil release could be effective in reducing wild volatility and reducing abrupt uptrend moves, but with OPEC + still reluctant to support production, prices need a long-term solution , ” said Avtar Sandu, a commodities manager at Phillip Futures.
The US plan is accompanied by a diplomatic push for the International Energy Agency to coordinate a global oil release by other countries.
Energy inflation is becoming unsustainable, thanks to the sanctions against Russia . More oil on the market would help cool prices to some extent.
Analysts’ estimates on Biden’s move
What can really happen to the oil market with Biden’s yet to be confirmed decision?
Oil prices reacted quickly to the news, but there is unlikely to be a strong short-term impact on physical markets as volumes are still relatively small compared to war losses in Europe according to Daniel Hynes, senior commodity strategist in Australia and New Zealand Banking Group Ltd.
“A potential release of crude oil from the Strategic Petroleum Reserve would help the market rebalance this year, but it will not solve a structural deficit for oil,” Goldman Sachs analysts said in a note.
Skepticism was also expressed by Oanda experts: “In the long run, it means that the US strategic reserve will be substantially reduced, just as demand rises during the US summer season, causing a potential upside for oil prices .”
According to ING, the release would be the biggest ever if it all came from the US and that would help alleviate some of the lack of supply. While it would bring the volume of the nation’s strategic oil reserves to its lowest levels since the 1980s, the US will likely push for a coordinated release so that the move has a more significant impact on the market.