Is the US set to release oil from the Strategic Petroleum Reserve?

The Biden administration has made it clear in recent weeks that Gasoline prices are too high. In various statements, the White House has called on OPEC+ to pump more oil to lower the price at the pump for American consumers.

Speculation has ramped up in recent days that the US and other countries – including Japan, India, and even China – could coordinate and release reserves to lower prices. The speculation increased when the White House announced President Biden is due to deliver remarks on the economy and lowering prices for the American people at 14:00GMT (09:00 Eastern time).

What could Biden announce?
Politico reported that Biden administration is expected to release oil from the Strategic Petroleum Reserve (SPR). The US release is expected to be between 30-35 million barrels and would be carried out over time, a source told Politico.

Reuters reported that the release would be a loan of oil from the SPR. Under a swap, oil companies take crude oil but are then required to return it or the refined product, plus interest, at a later date.

Coordinated effort
It is expected that Japan and India will join the US and announce a coordinated release of reserves. Reports on Tuesday suggested that India is reportedly planning to release 5 million barrels of oil from its reserves.

Over the weekend, new Japanese Prime Minister Fumio Kishida confirmed that Japan was considering releasing oil from its reserves for the first time, however, Japanese law states that they can only release reserves at a time of supply constraints or natural disasters, not to lower prices.

There was also speculation that China could join the coordinated response, however, that appears to be less likely. China has already publicly announced a modest release of oil from its reserves twice in the last four months.

“China does not have the need to release our SPR immediately,” a senior Chinese source told SGH Macro Advisors. “We will take caution in releasing strategic crude oil reserves.”

The update from China comes as Chinese companies continue negotiations with members of OPEC+ for their 2022 crude oil trade contracts. It is thought that China may want to maintain its relations with the likes of Saudi Arabia and Russia, rather than be seen to be bowing to US pressure.

Could OPEC change their production plan?
If the US and others oil consumers release oil from their strategic reserves, a policy response from OPEC+ could occur.

Next week, the group meets to decide whether to increase oil production by another 400,000 barrels per day from January.

S&P Global Platts reported that OPEC+ could “reassess its options” if other countries release oil reserves, citing delegates.

“There are no concerns at this time about the US and China releasing crude from strategic reserves because if the market were to be oversupplied, OPEC+ has the option of not increasing or reducing production,” a delegate told Platts.

The UAE Energy Minister, an influential member of OPEC+, said he does not see the need yet for any change to the OPEC+ plan of monthly 400,00bpd increases in oil production.

Oil market response
On Friday, Goldman Sachs (NYSE:GS) said that according to their pricing model, the recent decline in oil prices since late October is equivalent to the market pricing in 4 million bpd combined hit to demand or increase in supply over the next three months. That would be equivalent to a 100 million barrel stock release as well as a 1.75 million bpd hit to demand due to the resurgence of COVID.

The US investment bank said low liquidity left the oil market pricing in a record large SPR release, aggressive lockdowns in Europe and a sharp slowdown in Chinese growth, and therefore viewed the move as “excessive”.

Goldman Sachs reiterated their average forecast for crude at $85/barrel in Q4.