On 23 November, US President Biden announced the release of 50 million barrels (mbbl) of crude oil from the US Strategic Petroleum Reserve (SPR).
Wood Mackenzie vice president Ann-Louise Hittle said: “Of the release, 32 mbbl is a loan for delivery by end-April next year. The other 18 mbbl is a direct sale and is a continuation of what was already underway – sales from the SPR required under an earlier budget bill.”
It is not yet clear when or how China, South Korea and Japan will release crude oil while the SPR volumes of the UK and India releases are small, at 1.5 mbbl and 5 mbbl respectively, and not yet clarified on timing.
Hittle said: “The lack of concrete plans and prompt timing weakens the downward price impact and can cause prices to rise because it is seen as a disappointment to what was expected. In effect, news of the SPR release had been widely discussed for several weeks and was already priced in.”
Brent was trading near $79 per barrel. At the end of day (23 November), the settle price for Brent was US$82.31, up $2.61 from Monday’s close.
Hittle added: “Another reason for the price increase on 23 November was the uncertainty on whether OPEC+ might stop increasing its production in response to the SPR announcement. The group meets on 2 December to decide if it should boost output by the planned 400,000 b/d increment for January. President Biden has been trying to convince OPEC+ to boost output by an additional amount above the agreed 400,000 b/d.”
Majority of the US SPR is made up of medium sour quality crude and Wood Mackenzie expects the 50 million bbls released from the US into the market to have a marginal impact on sweet-sour spreads in the US Gulf Coast (USGC) market.
Hittle commented: “We have already seen sweet-sour spreads widen modestly in recent months due to increased processing costs of sour crudes related to rising natural gas prices but are still tighter than levels seen in early 2020 due to OPEC+ removing significant sour crude supply from the market. We expect the increase in sour crude availability in the USGC market to further widen sweet-sour spreads with the magnitude dependent on the pace of release into the market.”