Biden calls for help from the world to ease the global energy crisis

Oil prices fell to their lowest levels in six weeks, with Brent and WTI falling below the psychologically important $ 80 a barrel mark for the first time in weeks. Brent was listed at $ 79.67 a barrel in Friday’s intraday session, with WTI trading at $ 77.65 as talks of several countries releasing crude from their strategic reserves continued to gain momentum . According to Reuters, the Biden administration reached several countries, including China, India, South Korea and Japan, urging them to synchronize the release of crude from their Strategic Oil Reserves (SPRs) in a bid to bring down global energy prices.

At the opposite end of the spectrum, European gas prices have recovered from their intra-week lows, a sign of a Russian supply flows remained disappointing.

According to the Financial Times, while Gazprom (OTCPK: OGZPY) started adding gas to its largest storage sites in Germany and Austria last weekend, Russia did not reserve additional pipeline capacity, suggesting any storage fill would come from existing flows.

Russia did what it said it was going to do, but very narrowly. What would elicit a larger reaction from the market would be if Gazprom reverted to short-term gas auctions, as they did in previous years.“, says Laurent Ruseckas at IHS Markit FT.

UK National Balancing Point (NBP) gas rose 1.89 pence (p) per therm w / w to 204.79 pence per therm on November 15, a strong rebound from the settlement of 178.98 p / therm on November 10. Dutch Title Transfer Facility (TTF) gas increased by EUR 0.873 per megawatt hour (MWh), before surpassing EUR 89 / Mwh on November 16 following the temporary suspension of the regulatory approval process for the Nordstream 2 pipeline.

Also note: The price of EUA carbon allowances was reinforced by the COP26 meeting, and in particular by the completion of the carbon trading framework of the Paris Agreement. The first month EUA contract rose 5.30 EUR / t / s to an all-time high of 65.93 EUR / t on November 15.

While gas prices remain high in other regions, US prices have continued to decline thanks to a relatively comfortable inventory position due to a warmer-than-usual start to winter and, of course, latest developments of the SPR.

According to the American Gas Association (AGA), there were 96 heating degree days in the week leading up to November 13, 28 less than normal (i.e. warmer than normal conditions) . The cumulative number of degree days since early October stands at 421, 134 less than normal and 27 fewer year-on-year.

First-month Henry Hub gas prices fell from $ 0.41 per million UK thermal units (mmBtu) w / w to $ 5.017 / mmBtu.

Coordinated SPR version

Biden’s highly unusual move comes just months after he made another unusual request to OPEC + stimulate production in order to tame the rise in oil prices. As might be expected, OPEC + declined the offer and stuck with its previous routine of increasing production by 400,000 bpd per month that it started in August until the remainder of the reduction of 5.8 million bpd to be phased out.

However, Biden’s SPR decision is a totally different bet because, unlike OPEC +, which is clearly interested in keeping oil and gas prices high, China and India have already started releasing crude. of their SPRs with an end game similar to that of Biden: drop in oil prices.

China does not disclose the volumes of crude entering its strategic and commercial inventories. However, an estimate can be made by deducting the total amount of crude available from imports and domestic production from the amount of crude processed.

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Calculations based on this method show that China drew about 589,000 bpd from its SPR in May; 980,000 bpd in June and ~ 223,700 barrels per day in July. HFI Research estimates China’s SPR capacity to be between 840 and 1260 million barrels, with current reserve levels closer to the lower end of that range.

Meanwhile, crude imports for the first eight months of 2021 hit 10.4 million bpd, down 5.7% from the same period last year.

In June, Beijing announced huge cuts in import quotas for the country’s private oil refiners. According to Reuters, independent Chinese refiners were awarded a total of 35.24 million tonnes of crude oil import quota in the second batch of quotas this year, a reduction of 35% from 53.88 million tonnes for a similar tranche a year ago.

The story is pretty much the same in India.

India announced in August that its SPR will be more active, although its relatively small size compared to that of China makes its impact more inconspicuous.

India has started selling oil from its SPR to state-owned refiners as part of efforts to commercialize the storage. Reuters reported that 5.5 million barrels are being sold, while Indian newspaper Mint reported on September 12 that a total of 4.3 million barrels would be sold to two refiners by December.

These are relatively low volumes, representing a little more than a daily demand for India.

Produced on an independent basis, SPR releases from the United States, China, or India may do little to disrupt global oil markets. A coordinated outing by 4 or 5 of the biggest SPRs, however, is another story.

Immediate relief

President Biden has faced calls to action from various parts of the Democratic Party,

including Senate Majority Leader Chuck Schumer, who demanded on November 14 “immediate relief at the gas pumpUS gas prices have jumped 60% year-to-date, with prices in California reaching all-time highs.

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However, the White House’s top advisers currently appear to be divided according to their main area of ​​expertise.

The president’s economic and political advisers (who are generally in favor of swift action on gasoline prices) are reporting lower presidential approval ratings and worrying inflation figures. The president’s energy advisers (who are generally more willing to wait) point to gasoline price forecasts in the Energy Information Administration’s (EIA) short-term energy outlook; The EIA expects gasoline to average $ 3.16 per gallon (gal) in December, down from the current national average of $ 3.41 per gallon, and between $ 2.99 and $ 3.02 / gal in each of the first six months of 2022.

According to analysts at Standard Chartered, the best outcome for the administration would be for the market to remain in the current holding model for an extended period. A sharp rally in oil prices above $ 85 / bbl would likely force a release of reserves, but the more time goes by the more we expect the fundamentals to become more comfortable and the less calls for a quick rally well in the past. – over $ 100 are credible. / bbl are likely to become.

Analysts say calls for release have led to a situation in which an important amount of money is on the sidelines of the market looking to buy dips after any actual exit. While many traders doubt the credibility or effectiveness of an SPR post, few would like to be taken in an exposed long position the moment a post took place, and keeping that money out of the market has slowed the rise in prices. price. The threat of release has already earned the US administration at least two more weeks.

Losing some credibility with oil traders by not releasing quickly seems a relatively minor cost in terms of the time saved and the underlying weakening of market fundamentals and the associated dispersion of the fear factor of market stress.

By Alex Kimani for Oil Octobers

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