By Barani Krishnan
Investing.com - Damning indictment? Or the natural reaction of a market that just needed to rebound?
Whatever the case, the Biden administration’s much-anticipated coordinated crude release with other major consuming countries sent oil prices up more than 3% on the day instead — not exactly what the White House wanted.
WTI, or the West Texas Intermediate benchmark for U.S. crude, settled up $1.75, or 2.3%, at $78.50 per barrel. It had hit an eight-week low $74.76 in the prior session.
London-traded Brent crude, the global benchmark for oil, also settled up $2.61, or 3.3%, at $82.31 per barrel.
Earlier on Tuesday, the U.S. Energy (NASDAQ:USEG) Department said that President Joe Biden had authorized the release of 50 million barrels from the country’s Strategic Petroleum Reserve. India and Britain followed up with announcements of a 5 million barrel and 1.5 million barrel release from their reserves, respectively.
China, South Korea and Japan are also expected to join the U.S. plan after producers in OPEC+ repeatedly ignored calls by the consuming countries to pump more crude to match soaring demand for energy in economies emerging from the coronavirus pandemic. OPEC+ groups the 13-nation Saudi-led OPEC with 10 other oil producers steered by Russia.
Analysts said whatever was announced on Tuesday as part of the coordinated crude reserves release was barely adequate to fill global needs.
“The amount of oil that we’re talking about is just a drop in the barrel so to speak,” Catherine Rampell, a Washington Post opinion writer said, referring to reserves’ release during an appearance on CNN. “We’re talking about 60 to 75 million barrels of oil globally that’s consumed in a day.”
Biden himself alluded to Tuesday's release as being inadequate to pull the market lower immediately.
"While our combined efforts will not solve the problem of gas prices overnight, it will make a difference," the president told Americans in a televised message from the White House. "It will take time but before long, you should see the price of gas drop where you fill up your tanks."
Many market participants were also mindful of what the OPEC+ reaction would be. The global oil producing alliance holds its monthly meeting on Dec. 2 and could strike down the 400,000 barrels per day of additional output it had pledged before consuming countries began demanding for more.
“The focus is now solely back on OPEC and no one would be surprised if they scaled down their production plans given the short-term uncertainties to the crude demand outlook and some vengeance for the coordinated tapping of oil reserves,” said Edward Moya, head of US research at brokerage OANDA.
Some said that the combined release of more 55 million barrels announced under the reserves’ release could help mitigate some of the peak heating demand required for the northern hemisphere winter.
“We needed about one million barrels a day extra to fill the gap,” said Kilduff, founding partner at energy hedge fund Again Capital. “On its face, this should help to get us through early January, and then, depending on what the Asians put on, it could make the difference."
Kilduff also cautioned about another unknown in the oil price drama — the emergence of new Covid-19 breakouts across Europe, which have already sent Austria into a new lockdown and Germany and others into considering the same.
“These new lockdowns are a real problem for energy demand … something not many in the energy markets anticipated,” said Kilduff.
More than 2 million new infections have erupted each week across Europe, the most since the Covid-19 pandemic began.