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Potential U.S. strategic oil release to offer only modest relief

Goldman Sachs said a likely release of crude oil from the U.S. Strategic Petroleum Reserve (SPR), which could be up to 60 million barrels, only posed a $3 per barrel downside risk to its year-end $90/bbl Brent price forecast.

Further, a ban on U.S. crude exports “would significantly disrupt the U.S. oil market, with a likely bullish impact on U.S. retail fuel prices that price off Brent,” the bank said in a note dated Oct. 6.

U.S. Energy Secretary Jennifer Granholm said on Wednesday that the administration is considering tapping the country’s emergency oil stash to cool a surge in gasoline prices on higher demand as the coronavirus pandemic eases, according to a Financial Times report.

Granholm also did not rule out a ban on crude exports, which was lifted in 2015 when Obama was president.

The SPR, held in caverns on the Texas and Louisiana coasts, currently holds about 617.8 million barrels of crude, according to the Energy Department, the lowest in about 18 years.

“Such relief would, however, only be transient given the structural deficits that the global oil market will face from 2023 onward. Any larger price impact that further slows the U.S. shale oil activity rebound would in turn lead to much higher U.S. natural gas prices next year,” the Wall Street bank said.

While such a release from the SPR may be considered as a requirement to aid a recovery in shale activity, amid higher output from the Organization of Petroleum Exporting Countries (OPEC) “such actions could perversely prove inflationary instead,” Goldman said.

A potential halt to energy exports, meanwhile, “would further widen the country’s trade deficit, leading to a potentially weaker USD and – as a result – higher domestic (imported) inflation.”
Source: Reuters (Reporting by Seher Dareen and Arpan Varghese in Bengaluru;Editing by Elaine Hardcastle)

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