Joe Biden took the decision to release oil from the US SPR primarily for domestic reasons: to ease the burden on the US consumer following the increase in world oil prices or at least to show he is doing something about it. There is also an international dimension to it whereby the President showed that he was able to gather support from major oil consumers, including China.
The release is not just a question of volumes but also of timing: the impact will depend on other moving parts in the market including oil demand and supply growth.
Dr Nakhle adds that oil markets, unlike gas markets, are not experiencing any crisis. For instance, gas prices increased by 600% from the beginning of 2021 compared to only a 40% increase in oil prices during the same period. The reason behind the relative stability in the oil markets is due to the efforts of OPEC+, which still holds a significant amount of spare capacity.
On the demand side, Covid-19 is resurging in some areas of the world, such as in Europe. Any restrictions or lockdown measures imposed will negatively impact economic growth and, thus, the demand for oil. These developments do justify OPEC+’s policy in having a cautious approach as risks are still looming.
On balance, Dr Nakhle concludes that most forecasting agencies estimate a market surplus in 2022, where the growth in oil supply including non-OPEC supply is expected to outstrip demand.
“Oil markets: What crisis?“, Dr Carole Nakhle, Nov 2021
“What does the release of the US SPR mean for OPEC+?“, Dr Carole Nakhle, Nov 2021
“Global Economy and Energy Markets Weekly Commentary – 21st Nov ’21“, Christof Rühl, Nov 2021
“Biden under pressure to ban US oil exports“, Dr Carole Nakhle, Nov 2021
“Oil prices and the US dilemma“, Dr Carole Nakhle, Nov 2021