Oil Extends Drop as Investors Assess Reserve Release, Covid Wave

Oil extended declines — after four weeks of losses — on signs the U.S., China and Japan are all preparing to tap national crude reserves as concerns over accelerating inflation intensify.

Futures in New York dipped below $76 a barrel after losing almost 6% last week. U.S. President Joe Biden has been talking about a possible release from the Strategic Petroleum Reserve for several weeks, and Japan’s TV Asahi reported Monday that Tokyo is preparing to release crude from its national stockpiles as part of a joint effort with the U.S. 

The return of virus restrictions in Europe, meanwhile, suggests there could still be a threat to global energy demand from a resurgent Covid-19. Austria goes into a full lockdown on Monday, while Germany and other nations are cracking down on the unvaccinated as cases spike. 

Oil Extends Drop as Chance of Coordinated Reserves Release Rises
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Oil has fallen from a high in late October as speculation the U.S. and other countries would release reserves increased. Any national sales will need to be pretty substantial to move prices further, with Goldman Sachs Group Inc. saying last week that the impact of around 100 million barrels of reserves auctions was already priced into the market. 

An internationally coordinated release would, however, send a powerful message to the OPEC+ alliance, which has so far resisted calls to restore supply faster. Biden and Chinese President Xi Jinping talked about the merits of utilizing strategic reserves during their summit last week.

“The U.S. has been talking for a few weeks but they have done nothing,” said Vandana Hari, founder of Vanda Insights, referring to the release of strategic reserves. “The fact they did not do it at multi-year peaks is a sign they’re unlikely to make the move. Oil prices are sliding due to the outbreaks in Europe, that means pressure is already easing.”

Oil Extends Drop as Chance of Coordinated Reserves Release Rises
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West Texas Intermediate for January delivery fell 0.3% to $75.91 a barrel on the New York Mercantile Exchange at 1:02 p.m. Singapore time after tumbling 3.7% on Friday. Futures lost 5.8% last week. Brent for January settlement declined 0.2% to $78.76 on the ICE Futures Europe exchange after declining 2.9% on Friday.

Japan’s Oil Stockpiling Act doesn’t allow for the sale of reserves due to high prices, but both the government and the private sector currently hold more reserves than the minimum required under the law, according to a report over the weekend in the Yomiuri newspaper, which cited government sources. Tokyo has determined it can use its stockpiles legally as long as it taps surplus supply, according to the TV Asahi report, which cited an unnamed government official. It didn’t provide further details on how much oil would be released.

Other market news:
Saudi Aramco said it will continue to look for investment opportunities in India, days after Reliance Industries Ltd. scrapped a plan to sell a stake in its oil-to-chemicals unit. Colombian front-runner Gustavo Petro said his first decision as president would be to stop awarding oil exploration contracts, according to an interview with El Tiempo.

Source: Bloomberg

Oil Extends Drop as Investors Assess Reserve Release, Covid Wave via @goldsilverrepor
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