Emergency oil sales for non-emergencies: a tsunami sandbag case

Emergency oil sales for non-emergencies: a tsunami sandbag case

If the Joe Biden administration and leaders of other major consuming countries were hoping oil prices would drop after announcing a coordinated sale of oil from emergency stocks, well, oops. As we write this column, the question that most likely arises is why benchmark crude oil prices rose nearly $ 3 a barrel after the announcement. We believe this reflects a combination of factors discussed below.
First, while the Biden administration has touted a list of six countries participating in the emergency sale of oil stocks, actual volumes excluding those from the United States are meager.

Japan’s initial reaction told us it was cool about the idea and its 4.2 million barrels that appear to be offered for sale is a literal drop in the bucket of the oil balance sheet. We consider the UK’s 1.5 million barrels pledge to be a token at best, as is India’s 5 million barrel tranche as well. As of this writing, neither Korea nor China have yet provided figures for their respective contributions.

Second, most of the emergency release of US inventories will actually be an ‘swap’, meaning that the crude in the inventory is borrowed by refiners and then paid back (in barrels) over a period of several months. . Essentially, this is a short term loan of 32 million barrels.

The remainder of the US volume (18 million barrels) on sale that was already in place and is slated for congressional fundraising for various programs. This means that sales of emergency stocks will effectively only be 12 million barrels more than what we have already forecast in our oil balance forecast. Considering the daily rate of global oil demand, inventory sales volume is inconsequential.

Third, the volume of sales of emergency stocks will be fairly easy to compensate for OPEC + if it so chooses. The next meeting will discuss the postponement of the settlement of quotas already agreed.

The supply / demand aspects of this discussion will focus on the expected timing of planned emergency inventory sales (for example, assuming all 60 million barrels of combined sales occur, a release that spans two to four times. months is a different problem than sales spread over, say, 30 days).
Last but not least, based on our work on supply and demand, the sale of emergency stocks devised by the US administration will be woefully short of the additional supply needed to keep global stocks from rising. significantly reduce in 2022.
We know our oil balance forecast is not consensual (this was also the case for 2021), but this noted that we expect global oil stocks to decline next year, even with OPEC + reaching its peak. capacity by the fourth quarter.
Although noted in our last column, we are forced to re-emphasize that sales of non-emergency emergency oil inventories historically see oil prices rebound through the actual sell-off. We have every reason to expect this latest ploy to have the same effect.

• Michael Rothman is the President and Founder of Cornerstone Analytics, a US-based consulting firm focused on macroenergetics research. He has nearly 40 years of experience covering global energy markets and has participated in OPEC meetings since 1986. He is also the author of “Cornerstones of Life” which is available on Amazon.com

Disclaimer: The opinions expressed by the authors of this section are their own and do not necessarily reflect the views of Arab News

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