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Price impact from oil reserves release unlikely to last long- JP Morgan

Any impact on oil prices from a release of crude from strategic petroleum reserves by the United States and other countries may not be sustained for long, JP Morgan Global Commodities Research said on Wednesday.

The United States is to release of millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to cool prices after OPEC+ producers did not respond to calls to pump more crude.

Oil prices were steady on Wednesday, pointing to uncertainty about the effectiveness of the U.S.-led release. [O/R]

“Any further price impact of an actual release will likely not be sustained, as balances would not change beyond the month of the discharge,” JP Morgan said in its research note.

JP Morgan analysts said the likely release of more than 80 million barrels along with reduced fuel demand in Europe due to COVID-19-led lockdowns might prompt OPEC+ to stay the course and refrain from raising output quotas for January 2022.

Goldman Sachs earlier called the 70 million to 80 million SPR release a “drop in the ocean.”

On the demand front, JP Morgan forecast that global oil consumption would surpass 2019 levels by March 2022. The U.S. bank also projected that Brent oil prices would average $88 per barrel in 2022 and $82 per barrel in 2023, breaching $90 per barrel sometime in the third quarter of 2022.

“After posting growth of 5.6 mbd this year, we expect global oil demand to grow by another 3.5 mbd in 2022 and reach 99.8 mbd— 280 kbd above 2019 levels and a record high,” JP Morgan said.

Despite the rapid pace of growth, U.S. supply could potentially return to pre-COVID volumes only in July 2023 – three years after negative WTI prices, leaving OPEC firmly in control, the note said.
Source: Reuters (Reporting by Asha Sistla and Seher Dareen in Bengaluru. Editing by Jane Merriman)

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