US leads oil release with 50mn bl from SPR: Update

Updates with changes throughout

President Joe Biden has ordered the US to draw down up to 50mn bl of crude from its Strategic Petroleum Reserve (SPR), as part of a global push by oil-consuming countries to lower fuel prices that have surged to seven-year highs.

The US will offer long-term loans of up to 32mn bl from its SPR over the next five months, while selling 18mn bl of crude outright. India separately plans to release 5mn bl of crude from its strategic stocks over an unspecified time frame, while the UK today authorized companies to "voluntarily" release the equivalent of up to 1.5mn bl of oil held in reserves.

China, Japan and South Korea also plan to join the global effort, but they have yet to release further details on the size of potential draw downs. Biden has been working to negotiate the coordinated oil release, based on concerns that supply has not kept pace with a surge in demand as the world economy recovers from the Covid-19 pandemic.

"This culminates weeks of consultations with countries around the world, and we are already seeing the effect of this work on oil prices," the White House said.

Ice Brent crude futures before the announcement had already dropped by about $6/bl since reaching the highest price since 2014 last month. But markets appear to have been expecting a larger SPR release than what was announced today. Ice Brent front-month January crude futures at 14:30 GMT were at $80.75/bl, up from their $79.70/bl settlement on 22 November.

The global oil release comes as the Opec+ group is set to meet on 2 December to discuss whether to stick with long-term plans to raise production. The White House has repeatedly said its preference is for oil producers to lift output, but said Biden chose to authorize a crude release as an alternative when the producing countries declined to alter course.

"Opec+ has said they are planning to release an additional 400,000 b/d starting in December, and our hope and expectation is that they will continue on that course," a senior Biden administration official said.

The coordinated global releases of crude mark the emergence of an "anti-Opec+" and will create an artificially looser energy market, consulting firm Rystad Energy said. But these new market dynamics may last only 1-2 months and could cause more supply constraints in the future.

"Emptying out storage will put even further strain on already low oil stockpiles, and as these countries will eventually have to go on a buying spree to refill the strategic reserves," Rystad senior oil markets analyst Louise Dickson said.

US crude mostly on loan

The release of crude from the US SPR will occur in two tranches and start as early as next month. The White House said Biden is prepared to take "additional action" if needed to maintain adequate supplies. Biden has the authority to release an additional 60mn bl of crude by approving an emergency draw down from the SPR.

The US Energy Department in the first tranche of crude from the SPR intends to offer long-term loans of 32mn bl during the first four months of 2022, with the option for early deliveries in late December 2021. Participating companies will return the crude they receive in 2022-24, plus a premium based on how long they hold the oil. Bids will be due by no later than 6 December and contracts will be awarded by no later than 14 December.

The exchange will involve releases from the SPR's four storage sites, 10mn bl from Big Hill, Texas; 10mn bl from Bryan Mound, Texas; 7mn bl from West Hackberry, Louisiana; and 5mn bl from Bayou Choctaw, Louisiana.

For the second tranche of crude from the US SPR, the administration is accelerating the sale of 18mn bl that the US Congress already required under a 2018 budget law. The Energy Department plans to release a notice of sale by 17 December at the earliest, but it did not provide a timeline for the likely drawdown.

The US reserve held 604.5mn bl of crude, 252.5mn bl of sweet and 352mn bl of sour crude, as of 19 November, according to the Energy Department.

India has not provided details on the timing of its intended 5mn bl release. India's SPR has around 39mn bl of capacity split in three sites: 11mn bl at Mangalore, 9.8mn bl at Vishakhapatnam and 18.4mn bl at Padur.

The UK said its release of up to 1.5mn bl of oil would support the global economic recovery.

"This will be voluntary, not mandatory," the UK said. "If all companies chose to use this flexibility it would release the equivalent of 1.5mn barrels of oil."

By Chris Knight, Ruxandra Iordache and Sathya Narayanan