Wall Street Analysts React To Biden's Not-So-Strategic Petroleum Reserve Release

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by Tyler Durden
Tuesday, Nov 23, 2021 - 01:06 PM

As noted earlier, Biden's announcement of an exchange-based release from the SPR has been a dud, with Brent sliding from $85 to $78 on the rumor of the imminent "not-so-strategic" release - which it appears was meant to be an emergency backstop for true emergencies as well as to sliding Democrat poll numbers - and then promptly recovered more than half the drop, spiking from $78 to $82 today following news of the coordinated, global SPR release of some 32mm bbl, an amount that we said earlier was a "rounding error" and far too small to make a real difference, and the market seems to agree.

And then there is the matter of payback.

But while the market's verdict is clear, and Joe Biden will certainly not be happy with the outcome, here is what Wall Street analysts think in their kneejerk reactions to the announcement, courtesy of Bloomberg:

RBC Capital Markets analysts including Helima Croft

  • The U.S. administration “believe they have the ability to do another release of a similar magnitude” if prices rise further
  • Any such release would be through an exchange mechanism, meaning the barrels will have to be replaced
  • The U.S. is keenly focused on reducing gasoline and diesel prices ahead of the holidays but also sees SPR releases as part of a plan to deal with inflationary pressure
  • Next week’s OPEC+ meeting will be crucial in determining the efficacy of Tuesday’s announcement
  • It’s most likely that OPEC+ will stick with its existing plan to proceed with output increases next week, but Saudi Arabia may push to scale back the plan

UBS strategist Giovanni Staunovo

  • Outlook for crude prices remains positive, as oil demand still expected to increase and OPEC+ remains in control of most of the oil market
  • SPR releases are not a fix for imbalances caused by a lack of investment and still-rising demand
  • Traders will shift their attention to the OPEC+ meeting on Dec. 2
  • OPEC+ may be encouraged to stay on hold and not increase production in Jan. due to lockdowns in Europe

Bloomberg oil strategist Julian Lee

  • The OPEC+ group of oil producing countries will have to defer at least two months’ worth of planned output increases if it wants to offset the impact of coordinated crude releases from strategic stockpiles by the end of March
  • That may be no hardship for those members struggling to keep up with their rising output targets, but it will come as a blow to others hoping for a quicker restoration of shut-in production
  • Meeting consumers part way, perhaps by bringing forward half of the output boost intended for January, would probably have been enough to avert the release of strategic stockpiles

JPMorgan strategists led by Marko Kolanovic

  • While the top consuming nations are preparing to release oil from their national reserves to rein in rising prices, crude is actually cheap relative to other financial assets
  • Among global stocks, bonds and commodities, oil is in the 19th percentile over the last 20 years, and to rise to the 50th percentile relative to historical levels, it would need to be at $115/bbl

JLC report

  • China may sell at least 1 million tons, or 7.33 million barrels, of Russia’s ESPO crude from reserves soon
  • This would be the second time China sells oil from reserves in a public auction this year

BI analysts Will Hares and Salih Yilmaz

  • Release of crude from strategic stockpiles may drive near- term pressure on Brent, but ultimately represents only a temporary solution to elevated U.S. gasoline prices and global- market tightness
  • The move is likely to met by a response from OPEC+ either adjusting or delaying its monthly increase of 400k b/d at its next meeting on Dec. 2.

Source: Bloomberg