Prof. ST Hsieh
Director, US-China Energy Industry Forum
April 1, 2022
Right after Biden announced his plan of releasing US SPR at one-million barrels per day starting in May WTI benchmark lost about 1% today and US gasoline prices dropped by some 20 cents at some locations. But besides Biden’s announcement, nothing really happened yet: not a single molecule has left SPR. So, the market reacted to Biden’s signal favorably. However, it is not clear how long the price change will last, especially if the Ukraine war keeps fighting. There are many analytical reports that Biden’s move is not significant enough to have any real impact on the global crude oil price because released SPR is not new oil thus it is not a real increase of oil supply. The US oil industry has additional production capacities, but oil companies are not interested in investment for expansion. They call for Biden administration to relax federal regulations on production, transportation, and utilization of fossil energy.
Further, crude oil price is a major factor for US gasoline price, but it is not the only factor. At least, it will take some time for the lowered crude oil price to have an impact on the gasoline price. Most importantly, inflation is a global phenomenon caused by many factors other than high gasoline price. Global COVID-19 pandemic caused supply chain interruption, Ukraine war related geopolitical stress, nations monetary policy, existing trade wars collectively contributed to the global inflation. Even a cease fire of the Ukraine war will not provide an instant relief because sanctions will last until a true peace is realized even rebuilding the war zone will cause continued financial hardships.
The following report that IEA announced today “that its member countries will release additional oil from emergency reserves,” is another positive signal to the global market. But we have to wait for the details so that we can make an assessment.
It is also obvious that IEA has to organize a large scale SPR release is an indication that the US has not been able to persuade the OPEC+ to increase crude production. It is ironic that IEA was established as a defense mechanism because of OPEC boycott against the west in the 1970’s. The current state of affair is a result of US led EU sanctioning Russia energy export based on Russia invasion of Ukraine.
Western nations agree to new release of emergency oil
By Matt Egan, CNN Business
Updated 12:23 PM ET, Fri April 1, 2022
New York (CNN Business)The International Energy Agency announced Friday following an emergency meeting that its member countries will release additional oil from emergency reserves to cushion the blow caused by Russia’s invasion of Ukraine.
The IEA said details will be made public early next week. The latest steps from the IEA mark just the fifth time in the agency’s history that it has coordinated a release of emergency stockpiles.
In a statement, the IEA said energy ministers from its 31 member countries “reiterate their concerns about the energy security impacts of the egregious actions by Russia and voiced support for sanctions imposed by the international community in response.”
IEA members include the United States, the United Kingdom, Japan and Australia.
“The prospect of large-scale disruptions to Russian oil production is threatening to create a global oil supply shock,” the IEA said in the statement, noting that Russia is currently the world’s third-largest oil producer and the largest exporter.
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After announcing a record release of 180 million barrels of oil, US President Joe Biden said Thursday other countries could release as many as 30 million to 50 million barrels of oil. That would be in addition to the historic US release.
“The higher the number, the more likely the prices come down,” Biden told reporters.
In early March, the IEA announced the coordinated release of 60 million barrels from emergency reserves of member nations, including 30 million from the US Strategic Petroleum Reserve.
In addition to the reserve releases, the IEA said its governing board recommends governments and consumers “maintain and intensify
conservation efforts and energy savings.”
Russia exports about 5 million barrels a day of crude oil, representing roughly 12% of global trade, according to the IEA.