Oil Bounces Back as Investors Question Biden's Reserve Release

Staff and Wire Report

Oil prices recovered most of their recent decline by Wednesday as investors questioned the effectiveness of a U.S.-led release of oil from strategic reserves and turned their focus to how producers will respond. 

Prices had fallen as investors speculated that President Joe Biden's efforts to lower gasoline prices would help ease oil prices, but they rebounded after equity analysts brought expectations down to earth.

Jeffrey Halley, senior market analyst at OANDA, said the move to tap storage was "a one-shot wonder."

The Biden administration said it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain to try to cool prices after OPEC+ ignored calls to pump more.

The coordinated release could add about 70 million to 80 million barrels of crude supply, smaller than the more than 100 million barrels the market has been pricing in, analysts at Goldman Sachs said.

"On our pricing model, such a release would be worth less than $2 a barrel, significantly less than the $8 a barrel sell-off that occurred since late October," the bank said in a note titled "a drop in the ocean."

JP Morgan Global Commodities Research said any impact on oil prices from the release of crude may not be sustained for long. The brokerage also expects global oil demand to strengthen and surpass 2019 levels by March 2022.

Japan will release "a few hundred thousand kiloliters" of oil from its national reserve, but timing has not been decided, its industry minister Koichi Hagiuda said Wednesday.

Some countries have not taken a helpful position in terms of oil and gas prices, the head of the International Energy Agency said on Wednesday, saying not enough supply was reaching consumers.

OPEC and its allies were not discussing for now pausing oil output increases, three sources said. The group is to hold two meetings next week to set policy, with a gathering on Dec. 1 for OPEC members only and another on Dec. 2 for OPEC+, two sources told Reuters.

U.S. crude stockpiles rose 1 million barrels last week, the Energy Information Administration said, compared with analysts' expectations for a decrease of 481,000 barrels.

U.S. crude stocks in the Strategic Petroleum Reserve fell last week to 604.5 million barrels, their lowest since June 2003.

"While crude oil inventories built by 1 million barrels, crude oil inventories in the Strategic Petroleum Reserve dropped by 1.6 million barrels and along with continued declines in product inventories, I think this is supportive for prices," Andrew Lipow, president of Lipow Oil Associates said.

Prices were also tempered by coronavirus infections that broke records in parts of Europe, prompting new curbs on movement.

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