Brent remains steady as the market digests the latest US SPR
Front-month ICE Brent has increased by $0.43/bbl on the day, to $86.10/bbl at 09.00 GMT.
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Upward pressure:
Today's OPEC monthly outlook report will provide insight into the oil producer group's supply situation and outlook after Russia decided to cut production. OPEC+ members, which include core OPEC members and allies, are already underproducing their production quota, with Russia being the biggest under producer.
According to commodities market experts, Russia's decision to "voluntarily" cut oil production by 500,000 b/d will tighten global oil supplies.
The US Department of Energy has announced that it will sell 26 million bbls of sweet crude oil from Strategic Petroleum Reserves (SPR) from April to June, to meet the demand for this year.
Warren Patterson, ING's head of commodities strategy, has stated the sale is moving ahead despite speculations that the US administration would cancel or delay it. He notes that the sale will bring US SPR inventory to its lowest level since 1983, with stocks below 372 million bbls.
Short-term increases in US oil supply due to SPR releases would be offset by the need to replenish emergency reserves. As a result, the US will lose its strategic advantage of accessing cheaper crude to meet sudden shortfalls in the market. Last December, the US announced it would buy up to 3 million bbls for delivery in February 2023 below $96/bbl; however, the current shortage might make it more expensive to replenish emergency stockpiles.
Downward pressure:
The European Commission (EC) has stated that the European Union will narrowly avoid a technical recession this year, but "headwinds, however, remain strong." The EC also explains that “as inflationary pressures persist, monetary tightening will continue, weighing on business activity, and exerting a drag on investment.” This, in turn, is likely to weigh on oil demand.
By Konica Bhatt
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