The US plan to release an unprecedented amount of oil supply will aid in balancing the global oil market and keep prices steady in the years to come, according to a report. The firm warned that a larger-than- expected loss in Russia's oil supply could cause crude prices to go up again next year.
The US 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 wartime bridge to increase oil supply until production increases later this year to meet the demand for the commodity. Biden moved to address Americans paying near record-high gas prices after Russia's invasion of Ukraine in late February caused fears of a worsening supply shortage and pushed oil prices above $100 a barrel.
180 million barrels of oil are set to enter the market because of the planned release from the SPR.
According to a research note, the Energy Department will release less oil than the US government wants. A balanced market this year should be achieved because of what is likely to be released and other pending adjustments in the oil market. The investment bank left unchanged its oil price forecasts of $114 a barrel in the second quarter of 2022, and $101 a barrel in the second half of this year.
The investment bank said that the Energy Department will likely miss the target of 1 million barrels a day because of insufficient bids and infrastructure constraints. The US tapping its emergency reserves suggests there will be a delay in Iran bringing its own crude oil into the global market.
The bank supported its view by pointing to the US Treasury Department's announcement of new sanctions against Iran. Iran could return to the global oil market if the US and Tehran reach a nuclear deal.
We still expect the deal to cross the line given it is a key policy goal of the administration, but now assume that Iran begins delivering volumes from floating storage and increasing output in July 2022.
The global oil market is facing strong demand in part because of COVID restrictions. There are signs that demand for oil may be slowing, and that's why JPMorgan lowered its first-quarter demand outlook by 500,000 barrels of oil a day. In the US, it said surging gas prices have contributed to hurting fuel demand despite the start of the driving season.
The bank now expects total oil demand to grow by 3 million barrels a day over the course of the year to average 100.5 million barrels a day.
The mix of the release and the likely delay in Iranian exports should balance the market this year, but Russia's output picture remains a risk.
If stranded Russian barrels average more than 1 million barrels per day next year, we will be left with a deep deficit, rendering our $98/bbl price forecast for the year too low.
In its base case, the drop in Russian oil exports recovers from a loss of 2 million barrels a day in April and 1 million barrels a day after that. The risk is that the medium-term loss could be three times as high.
The price of oil has fallen since the announcement. The price of West Texas Intermediate crude fell below $100 a barrel on Friday, while the international benchmark fell to the lowest price in more than a month.
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