White House to Release Additional SPR Barrels
April 1, 2022
OPEC+ agreed to another modest monthly output increase of 432,000 BPD in May.
Energy prices were lower yesterday driven mainly by the news that the Biden administration plans to release 1 million BPD from the strategic reserve starting in May and going out for the next six months for a total of 180 million barrels.
According to a Reuters survey, a rally in oil is set to continue with prices staying well over $100 this year. A survey of 40 economists and analysts forecast Brent crude oil would average $103.07 per barrel this year up from the previous poll’s $91.15 consensus and the highest 2022 estimated yet in Reuters survey. The 2022 consensus for US crude oil was also increased sharply to $98.49 per barrel from the prior $87.68 per barrel forecast. With Russia’s invasion of Ukraine entering a second month, global supply shortages approached 5 million to 6 million BPD while demand has risen to record highs. Pool respondents were divided on when the market would see a balance between supply and demand, with estimates ranging from the second half of 2022 to 2024.
According to the EIA, US oil production fell in January by 2% to 11.6 million BPD, the lowest since September 2021. US oil production for December was revised up by 20,000 BPD to 11.587 million BPD.
US SPR crude oil inventories will fall to less than 400 million barrels. the lowest since 1984, if 180 million barrels are released over the next six months as briefed by the White House.
From JP Morgan. If the is a bottleneck preventing the SPR from reaching the sustained 1 million BPD pace of releases the White House is considering, it is not likely to be in the facilities themselves. Some traders have suggested that after drawing down more the 125 million barrels over the past five years and 50 million barrels since September, low cavern pressure in SPR facilities could slow deliveries. The other concern is the market’s desire and ability to handle the additional volumes. With US crude and condensate production climbing and crude exports back above 3 million BPD since November — the all-time high was 3.6 million BPD in March 2020 – US Gulf Coast pipelines and docks are likely running relatively full. To sell or swap 1 million BPD into the Gulf Coast for an extended period of time, the economics would need to be very attractive to buyers. The market is severely backwardated, ( prices are lower as you move out into future months), so there is no economic reason to storge barrels.
There will be challenges to implementing the White House’s plan to release all these barrels of oil. The headlines have already been filled with this news, so the effect has been accomplished for now.