Friday 19 November 2021

Joint release of SPRs and Covid-19 flare-ups in Europe bring down the price of crude oil

 

Oil price Friday


The price of crude oil continues to fall on Friday as the news of the joint release of Strategic Petroleum Reserves, SPRs, started gathering momentum, although there is no official response in this regard from any country involved in the unprecedented move.

As of 15:30 GMT, price of WTI and Brent stood at $76.56 and $79.16 respectively – a significant fall, reaching a 7-year-high mark in October; the prices fell almost by 3%

The development follows the 3-and-half-hour-long virtual meeting between President Biden and his Chinese counterpart, President Xi Jinping.

Although both sides refrained from publishing what was discussed during the relatively long meeting, the Chinese media was upbeat about the improvement of the ties in certain areas of the world’s top two economies.

The Chinese media was confident that the current energy crunch was on top of the agenda during the meeting between the two leaders and implied that President Biden suggested the joint release of the strategic petroleum reserves to keep the prices at a reasonable level.

Analysts believe that the Biden administration has asked Japan, South Korea and India to join the mission that they plan to embark on along with China. Their response, however, is not clear as of Friday; the Asian countries in the region have had already made a series of appeals to the OPEC+ to increase the production, but to no avail.

The rising energy cost has taken its toll on the economies in Asia as a whole. In this context, it is surprising if they do not warm to the American idea in the current form.

No doubt, it is a major blow to the OPEC+ in the short run. In the long run, however, the OPEC+ can hit back by raising the price of crude oil in order to compensate for the artificially-induced fall in oil prices.

Since the SPRs are limited quantities, only meant to be used in emergencies, the joint release of SPRs is never going to be a long term solution.

With the EIA, the US Energy Information Administration, predicting a fall in demand at the beginning of next year, the sudden blow to the revenue generation of the OPEC+ members due to joint release of the SPRs, can cause some damage beyond the psychological level.

It is not something they anticipated at this time; certainly no on this scale in a joint manner.

In Europe, meanwhile, the fourth wave of the Coronavirus has raised its ugly head again with countries going into full lockdown in the familiar pattern.

Austria is already in full lockdown and Germany declared a health emergency.

As a result, the demand for crude oil will dramatically fall in Europe as the winter sets in.

When the crude markets try to absorb the shocks of the joint release of SPRs, the resurgence of the pandemic can only make matters worse for the volatile market.