Adedapo Adesanya
By Adedapo Adesanya
Crude oil prices erased previous losses and jumped 3 per cent on Tuesday despite the announcement by the United States Administration that it would make available 50 million barrels of oil from the Strategic Petroleum Reserve (SPR) to ease prices.
Brent crude rose by $2.87 or 3.6 per cent close at $82.57 per barrel while the US benchmark, West Texas Intermediate (WTI) gained $2.04 or 2.66 per cent to trade at $78.79 per barrel.
The market was met with news on Tuesday with the announcement by US President Joe Biden that the Department of Energy would release 50 million barrels of oil from the SPR.
This was done in a coordinated effort with other major oil-consuming nations, which have complained of the biting effect of higher crude prices.
The SPR release from the United States is being carried out in conjunction with other major energy-consuming nations, including China, India, Japan, the Republic of Korea, and the United Kingdom.
India said it would release 5 million barrels, while Britain said it would allow the voluntary release of 1.5 million barrels of oil from privately held reserves.
Details on the amount and timing of the release of oil from South Korea, Japan and China were not announced with Japan set to release detail of its plans on Wednesday.
Despite the seemingly big number, 50 million barrels, the US release actually equals around two and a half days of American petroleum consumption, which was at 20.5 million barrels per day in the pre-pandemic 2019.
The other countries are going for much smaller releases, and the message seems to be that major oil consumers are coordinating efforts to try to lower high prices, while the Organisation of the Petroleum Exporting Countries and allies (OPEC+) refused to ramp up production.
To understand why the move didn’t immediately have an effect, market analysts said the effect on prices was likely to be short-lived after years of declining investment and a strong global recovery from the COVID-19 pandemic.
It was also pointed out that one-off sales from strategic reserves cannot do much to move oil prices significantly lower.
Despite this, the market still has to contend with the return of virus restrictions in Europe which could still be a threat to global energy demand from a resurgent COVID-19.
Also, a stronger US Dollar poses a threat to the market as the currency held near a 16-month high on Tuesday after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that US interest rates will rise in 2022.
