On October 18, news that the United States may once again release 10-15 million barrels of strategic reserves on a large scale caused international oil prices to fall to the lowest point in two weeks, giving up the gains made after the OPEC+ meeting. Brent crude oil futures fell $1.59/barrel or 1.73% to 90.03.
Data source: Longzhong Information
Since the beginning of this year, the United States has released two strategic reserves of crude oil. In early March, it released 30 million barrels in response to expectations of tighter supply due to the situation between Russia and Ukraine. Subsequently, on the 31st of that month, in order to curb the surge in gasoline prices in the United States after the Russia-Ukraine war, it announced the release of 1 million barrels of oil per day from strategic reserves. The total amount released in six months will exceed 180 million barrels, and a total of 165 million barrels have been released so far. The latest news is that the United States will release another 10-15 million barrels of oil from emergency reserves to balance the market and prevent gasoline prices from soaring. This will be the final part of the 180 million barrel strategic oil reserve release plan announced in March this year.
Data source: EIA
In the week of October 7, the U.S. Strategic Petroleum Reserve amounted to 408.699 million barrels, the lowest level since the week of June 15, 1984, and significantly lower than the lower limit of the past five years. The purpose of the release of reserves in the United States this time is to reduce domestic gasoline and diesel prices. It will also reduce the enthusiasm of oil exploration companies in the United States, making it difficult to increase crude oil production as expected. What oil mining companies are talking about is investor returns, and lowering prices is not in the interests of mining companies. Therefore, it is expected that crude oil production will continue to maintain the current output level of 11.9 million barrels per day in the short term, and it is difficult to see major expansion of production. And as strategic oil inventories continue to decline, the amount of crude oil purchased in the market to replenish the inventory will increase, and the shortage of supply and demand will also postpone exports to the next few months.
Overview of the release of strategic reserves by the United States over the years (unit: 10,000 barrels)
Source: Longzhong Information
Judging from the process of releasing strategic reserves in the United States, the frequency has accelerated significantly from last year to this year, with reserves released four times in two years. Although the scale of reserve releases was different, they all brought negative restraint to the crude oil market, and crude oil prices fell in response.
Source: Longzhong Information
The release of strategic crude oil reserves by the United States has a negative impact on oil prices. Looking back at history, we can find that except for the release of strategic reserves by the United States in 2017 and 2021, which had a relatively limited impact, other release nodes have exerted downward pressure on international crude oil prices. If the reserve release proceeds as scheduled, the negative pressure on oil prices will continue.
In addition to the negative pressure brought about by the latest release of reserves in the United States, the current crude oil market should also pay attention to the upcoming mid-term election of the U.S. President in November. Prior to this, intervention in the oil market may be stepped up. In addition, the EU’s energy sanctions on Russia and the energy supply problems in Europe after winter will have an impact on the crude oil market. Therefore, the downward risk of oil prices in November may be stronger than this month, and we still need to beware of negative risks.