Oil price: will the joint release of SPRs produce the desired outcome?

 

Prospect of releasing SPRs

Crude oil investors are bracing themselves for the ‘big news’ in the form of a public announcement by the world’s most powerful man in the evening, with regard to the steps taken by his administration to cut down on rising energy prices.

Everyone expects that President Biden will address the issue while referring to the tools at his disposal and how he is going to use them; tapping the SPRs, the strategic petroleum reserves, may be his number one option, the nuclear one.

The problem with this option, however, is exactly like in atomic radiation, the political fallout is going to linger on for years to come; most of the members of the OPEC+ that are on President radar are still staunch US allies in the Middle East.

Realistically, in light of the relatively small fall in the price of crude oil, however, its long term impact has become a hot topic among analysts and investors.

Of course, the Biden administration scored a diplomatic victory by taking all the major consuming nations, including China, on board. The collective move is not something that the OPEC+ anticipated, having turned its back on the individual requests to increase the output – at a difficult time in the middle of a pandemic.

The OPEC+ could have handled the concerns of the major consuming nations much better than it did; unfortunately, they shot themselves in the foot.

The Europe is on the brink of going into lockdowns again and the demand for crude oil will fall, if the continent fails to avert the fourth wave. It goes without saying how such an eventuality will reflect on the oil producing nations, which had been victims when the price fell precipitously at the beginning of the pandemic.

The reaction of the OPEC+ was as if it got carried away by the misplaced optimism of certain investment banks that had been predicting the price of crude oil smashing through a ceiling of $100.

Of course, the OPEC+ can respond by reducing the output. If the fourth wave of the Covid-19 is already upon us, such a move, at best is just impulsive and at worst, counter-productive.

The rising energy cost has fuelled inflation and among many things, it has made people use less fuel when the festive season starts.

As for President Biden, aged 79, he has to tackle two burning issues: inflation fuelled by rising energy prices and his own dismal approval ratings.

With a few bold moves, political analysts believe, he can tackle both simultaneously; with his decision to withdraw American troops from Afghanistan without batting an eyelid, he has already shows his mettle. He needs to make a similar move to tackle the energy crisis too.

Tapping into petroleum reserves collectively may not be his only option to dealing with the energy crisis, because he talked about ‘tools’ in his possession, not just a single ‘tool’ whatever the former may be.

President Biden’s determination to prioritize tapping the SPRs instead of other ‘tools’, meanwhile, implies his diminishing hope of reviving the JCPOA, 2015 Iranian nuclear deal. That means the risk of crude markets being overwhelmed by a supply excess appears to be as remote as it used to be, when President Trump was in power.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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