Oil market awaits OPEC+ response to SPR release

Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil reacted decisively positive to yesterday's announcement about a global release of Strategic Reserves. Brent crude initially climbed 3.8 percent and so far today it has managed to hold on to most of those gains in the belief the release is unlikely to have a long-term negative impact on prices. In this update we take a closer look at why the market decided to react in this manner while also looking ahead to EIA's weekly stock report and next week's important OPEC+ meeting.


Crude oil reacted decisively positive to yesterday’s announcement about a global release of Strategic Reserves. Brent crude initially climbed 3.8% and so far today it has managed to hold on to most of those gains in the belief the release is unlikely to have a long-term negative impact on prices.

    Source: Saxo Group

    Some of the reasons behind the bullish reaction to the news are:

    • A ten percent drop, partly due to raised expectations, during the past couple of weeks helped reduce the effectiveness of the actual announcement.
    • The decision to add supplies from strategic reserves was not driven by an acute shortage of supply but more a political signal from the under-pressure Biden White House to show action towards combatting rising inflation and high gasoline prices.
    • Out of the 50 million barrel US SPR release, 18 million will come from speeding up an already planned release, which so far has supplied 31 million barrels into the market this year. The additional 32 million being offered to refineries will have to be returned at a later day before 2024, thereby creating a zero sum solution. In addition, international contributions were smaller than expected with China being ambiguous on its involvement, despite being named as one of the participants.
    • Expectations for a balanced market in early 2022 as projected recently by all the major forecasters EIA, IEA and OPEC would support lower prices. But if they turn out to be wrong, the latest reduction in SPR could leave the market worried about available spare capacity to fend off another price spike. Not least considering OPEC+ may have little spare capacity left by then.
    • Equally important, the OPEC+ alliance called the move unjustified given current conditions and as a result they may opt to reduce future production hikes, currently running near 12 million barrels per month. The group meets next week to set the target for January.
    • Given the assumption of a balanced oil market next year, OPEC+ may at its meeting next week decide to reduce planned production increases in order to counter and partly offset the U.S. release.

    Failure to send prices lower may also raise speculation about an outright ban on US crude oil exports, but such a move could potentially cripple domestic refinery activity. Many U.S. refineries can not use the oil currently being produced from fracking as the quality is to light. Instead the US is dependent on imports of heavier grades from Canada, Mexico and OPEC while shipping its light crude oil to refineries that can use it in Mexico, Canada, China, Japan and India.

    While the short-term oil market focus is squarely on the December 2 OPEC+ meeting and whether the group agree to delay or reduce planned increases for January and beyond, the market will also try to gauge the current status in the US oil market in EIA’s weekly inventory report.

    Last night the API released their weekly update and their assessment of higher crude oil and gasoline stocks both went against surveys pointing to a drop. The report will also shed some light on the current pace of SPR releases which for the last ten weeks has been averaging 1.5 million barrels per week. Furthermore the market will also keep an eye on refinery activity to see whether there is much room for the additional SPR barrels.

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