The release of 180 million barrels in the US will stabilize the market

  • The release of US oil from its emergency stockpile will help stabilize prices this year, says JPMorgan.
  • Even if the US unlocks less than its 1 million barrels of oil per day target, it would still help balance the market and stabilize oil prices.
  • But a larger-than-anticipated loss in Russian oil supplies could leave a “deep deficit” in the market in 2023.

The US plan to unlock an unprecedented amount of oil supply will help balance the global oil market and keep prices stable in 2022, JPMorgan said on Friday. But the firm also warned that a larger-than-expected loss in oil supply from Russia could push crude prices higher again next year.

The United States plans to release 1 million barrels of crude oil every day from the Strategic Petroleum Reserve for the next six months, a move President Joe Biden called “a bridge of war“to increase oil supply until production ramps up later this year to meet demand for the commodity. Biden moved to address Americans paying near-record gas prices after the Russian invasion of Ukraine in late February sparked fears of worsening supply shortages and pushed oil prices above $100 a barrel.

The expected release of the SPR is equivalent to about 180 million barrels of oil that will enter the market.

JPMorgan said in a research note that it does not expect the Energy Department to release as much oil as the US government’s goal. However, what is likely to be released, combined with other pending adjustments in the oil market, should prove in a balanced market this year. The investment bank kept its oil price forecasts unchanged at $114 a barrel in the second quarter of 2022 and $101 a barrel in the second half of this year, with prices rising more than $120 in the meantime.

balancing act

Insufficient supplies and infrastructure limitations are likely to lead the Energy Department to release only 850,000 barrels of oil per day from the SPR, missing the 1 million barrels per day target, the investment bank said. Meanwhile, the use of emergency reserves by the US suggests that there will be a delay in Iran bringing its own crude oil to the global market.

The bank supported its point of view by pointing to the Wednesday announcement from the US Department of the Treasury. new sanctions against Iran’s ballistic missile program. The United States is still working to reach a nuclear deal with Tehran that could result in Iran’s return to the broader world oil market.

“We still expect the deal to cross the line given that it is a key political objective of the administration, but now let’s assume that Iran starts delivering floating storage volumes and ramping up production from July 2022,” said Natasha Kaneva, director of global commodity research at JPMorgan, said in the research note.

The global oil market has faced strong demand in part as COVID restrictions have largely eased around the world. But there are signs of a slowdown, JPMorgan said as it lowered its demand outlook for the first quarter of 2022 by 500,000 barrels of oil per day based on recent data from the US and Japan. In the US, he said rising gasoline prices have helped to hit fuel demand even though March marked the start of the driving season.

Taking into account recent trends in fuel demand, the bank now expects total oil demand in 2022 to grow 3 million barrels per day year over year to an average of 100.5 million barrels per day, which is ” only” 90,000 barrels per day above 2019 levels.

risk in Russian

While the combination of the SPR release, the likely delay in Iranian exports and slower demand should balance the market this year, Russia’s production outlook remains a risk, JPMorgan said.

“Crucially, we recognize that a release of oil inventories is not a persistent source of supply and if stranded Russian barrels average more than 1mbd next year, this will leave 2023 with a deep shortfall, which will make that our price forecast of $98/bbl for the year is too low,” with the view that tight supply is pushing oil prices higher.

JPMorgan said its base case assumes the drop in Russian oil exports recovers from a 2 million barrels a day loss in April, and a “perpetual” 1 million barrels a day after that. The risk, he said, is that the medium-term loss could be up to three times greater than his estimate. “Based on public [European Union] statements, we estimate that as of today there are intentions to diversify 2.7 mbd or almost 80% of Russian oil imports,” JPMorgan said.

Oil prices have been falling since Biden’s SPR announcement. West Texas Intermediate Crude has pulled back to trade below $100 a barrel and brent crude, the international benchmark, hit an intraday low of around $102 a barrel on Friday, the lowest price since March 17.

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