SPR release would have only modest price impact, export ban ‘disruptive’ - Goldman

7 Oct 2021

Quantum Commodity Intelligence - Goldman Sachs said Thursday that any release of crude stocks from the US strategic petroleum reserve would only have a modest impact on oil prices, while an outright ban on US oil exports would significantly disrupt the US oil market and may even lead to higher gasoline prices.

An SPR release was mooted by US energy secretary Jennifer Granholm Wednesday,  declaring that "all tools are on the table" while also not ruling out a ban on crude oil exports.

"If implemented, we would expect an SPR release to be of up to 60 million barrels, only representing $3/b downside to our year-end $90/b Brent forecast. Such relief would, however, only be transient," said Goldman Sachs in a client note.

Goldman added an SPR release would not address the structural deficits that the global oil market will face from 2023 onward, adding, "any larger price impact that further slows the US shale oil activity rebound would in turn lead to much higher US natural gas prices next year".

While Goldman acknowledged such an SPR release could be viewed as needed to supplement the slow recovery in shale activity and ramp-up in OPEC production, it could 'perversely' prove inflationary instead, arguing it could further slow the recovery in shale activity.

"This would leave for a greater dependency on OPEC production and a further reduction in US shale oil service capacity, increasing the incentive price for the rebound in shale activity eventually required by the global oil market. In addition, such actions would lead to much higher US natural gas prices."

Export ban

Describing a ban on exports as a 'blunt tool', Goldman said such a move would likely create large price distortions, with US export restrictions depressing WTI crude oil prices relative to Brent to balance the domestic market.

This would also have knock-on effects on the product markets, said the investment bank.

"Ironically, it would be particularly bullish gasoline and refined products more generally due to the fact the US will still be a net importer of gasoline, with the product needing to price off a much tighter Brent market to incentivize a continuation of such flows."

Meanwhile, the prospect of a US export ban could also scupper plans to add WTI Midland as a supplementary grade in the Dated Brent basket, which Price Reporting Agencies Platts and Argus have proposed.  

The proposal also has support from trading companies such as Trafigura and Vitol.