Oil futures: Prices surge following US SPR announcement, Brent nears $82.50/b

23 Nov 2021

Quantum Commodity Intelligence - Crude oil futures rallied strongly Tuesday amid volatile trading in the wake of the US announcing it would release 50 million barrels of crude from its Strategic Petroleum Reserve. 

Front-month January ICE Brent futures were trading at $82.43/barrel (1850 GMT), compared to Monday's settle of $79.70/b, and up from around $79/b just prior to the SPR announcement.

At the same time, January NYMEX WTI was trading $78.76/b, versus Monday's settle of $76.75/b and up more than $3/b from the day's low of $75.30/b.

The US will release 50 million/b of crude from its strategic reserves in concert with China, Japan, India, South Korea and the UK, President Biden announced.

This includes 32 million/b as an exchange over the next several months, while a further 18 million/b will be sold as part of a crude sale which Congress had previously approved.

Traders said the SPR release was already factored into prices, while the volume was at the lower end of expectations. 

Citibank had said the combined SPR release could be 100-120 million/b, which would include 45-60 million/b from the US and around 30 million/b from China, as well as 5 million/b from India and 10 million/b each from Japan and South Korea.

OPEC+ meets on 2 December to discuss 2022 production policy and may halt future output increases in response to the release of global reserves.

The Secretary-General of the Riyadh-based International Energy Forum, Joseph McMonigle, cautioned Monday that the OPEC+ producer alliance could alter future production plans if the Covid crisis grows or in the event of a coordinated release of global strategic reserves.

"Certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions," said McMonigle.

UAE Energy Minister Suhail Al-Mazrouei Tuesday played down speculation that OPEC+ would row back on production cuts, only saying the group would meet next week to discuss the market. 

Analysts at Goldman Sachs said Monday oil was oversold last week and reiterated their view of $85/b oil for the remainder of this year.

Soaring Covid cases and fresh dollar highs this week had weighed on oil futures, before prices rebounded after the US announcement.