A coordinated global release of oil reserves led by the United States, resulting in 70–80 million barrels of additional crude supply, fell short of the amount markets were pricing in, and according to Goldman Sachs has turned out to be little more than a symbolic gesture as global oil prices rebounded to a one-week high on Tuesday.
Analysts at Goldman Sachs had expected the effort made in tandem with China, India, Japan, South Korea, and the United Kingdom to result in adding more than 100 million barrels into the market. As such, the bank said in a note titled “a drop in the ocean,” dated Nov. 23 that “on our pricing model, such a release would be worth less than $2/bbl, significantly less than the $8/bbl sell-off that occurred since late October.”
On Wednesday, U.S. West Texas Intermediate crude was down 35 cents to $78.15 a barrel by 0031 GMT.
“While our combined actions will not solve the problem of high gas prices overnight, it will make a difference,” President Joe Biden said on Tuesday. “It will take time, but before long, you should see the price of gas drop where you fill up your tank.”
Biden ordered 50 million barrels of oil to be released from the nation’s strategic petroleum reserve (SPR) to help cool surging energy costs, reportedly the largest such release on record. The White House expects the aggressive action to be indicative of its efforts to ease pain at the pump.
“It’s not going to work simply because the strategic petroleum reserve—any country’s strategic petroleum reserve is not there to try to manipulate price,” Stephen Schork, editor of the Schork Report, said Wednesday on CNBC.
SPR exists to offset short-term, unexpected supply disruptions. “There’s a considerable amount of bets out there that we will see $100 a barrel oil,” said Schork who predicts the increase to happen in the first quarter of next year, especially if winter in the Northern Hemisphere gets severe.
Increase in Global Oil Demand
According to Donald Klepper-Smith, a director for DataCore Partners, any minute decrease in gas prices is going to be offset by home heating and the significant increases in travel. “This is more of a gesture and a political one at that. What’s driving this increase in prices is demand for energy because travel is on the rise, so you’re not going to see a decline there,” he said to CT Insider.Thanksgiving travel is looking to rebound to levels seen before the pandemic with almost 53.4 million Americans, 13 percent more than last year, expected to travel for the holiday, according to AAA officials. International travel is also predicted to pick up, resulting in boosting demand for jet fuel.
Based on data from the U.S. Energy Information Administration, the world consumed 97.53 million barrels of oil on a daily basis in 2021, up from 92.42 million barrels per day last year. Next year, the number will surpass 100 million.
“It is a clear sign of desperation that this is the only tool in the box and it is not going to work. I do believe the market will call the U.S.’s bluff on this and we’re likely to see higher prices rather than lower prices one month from now,” Schork said.
Schork recommended bringing together American energy producers and ramping up domestic supply to gradually bring down prices to manageable levels.
Republicans have blamed Biden’s policies for contributing to rising prices, including nixing the Keystone XL pipeline project and freezing new oil and gas drilling leases on federal land.
The latest global effort to counter OPEC’s stance on not to pump more oil into the market despite high prices might prove to be counter-effective, and may result in a “disruptive standoff,” Eurasia Group analysts said in a note dated Nov. 22.
Opposing actions by global powerhouses could result in “seesawing oil prices” and would “neither alleviate consumer price pressure nor give producers the required stability to ensure steady and reliable supply to a global economy that is still grappling with the worst pandemic in a century,” added the analysts.
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