Why US-led emergency oil release failed to 'shock and awe'

Asia's Tech News Daily

Why US-led emergency oil release failed to 'shock and awe'

The United States will make available 50 million barrels from the Strategic Petroleum Reserve.

LONDON (REUTERS) – Oil prices rose after the US-coordinated release of emergency petroleum stocks was announced on Tuesday (Nov 23), as the volume of extra petroleum offered to the market proved smaller than traders anticipated.

The United States will make available 50 million barrels from the Strategic Petroleum Reserve (SPR), with deliveries beginning in mid-December and lasting through end-April 2022.

The release includes 18 million barrels of outright sales previously mandated by Congress as part of the budget, which will be accelerated, and 32 million barrels of new swaps, which must be replaced no later than September 2024.

The release “will be taken in parallel with other major energy consuming nations,” including China, India, Japan, South Korea and the United Kingdom, the White House said in a statement.

India has announced it will release five million barrels. Britain will allow refiners and importers to reduce their inventories by up to 1.5 million barrels, on a voluntary basis.

Japan has indicated that it will release a few million barrels, though the amount has yet to be worked out. South Korea is discussing the details of its participation with the US.

But China has so far been non-committal, with the foreign ministry saying only that it would “organise a release of crude oil from state reserves according to its own actual needs”.

Unless China subsequently announces a very large draw down in its inventories, the global total is likely to be in the range of 60-75 million, far less than the 100 million barrels or more some in the market had expected.

As a result, crude spot prices rose on Wednesday (Nov 24) after the announcement, reversing some of their downward trend since the start of the month.

SPR anticipation

Spot prices had been softening since the start of November, well before the release was formally announced. Some of this may have been in response to intensifying speculation about a future sale.

The White House is likely to claim this shows the effectiveness of the stock release by reversing traders’ partially self-fulfilling expectations that spot prices and spreads would continue climbing.

But it is hard to disentangle the impact of speculation about a stock release from other factors weighing on oil prices.

By the start of October, portfolio managers had amassed an exceptionally large bullish position in petroleum futures and options contracts, especially in Nymex WTI.

Lopsided positioning has often preceded a reversal in the previous price trend as hedge funds and other money managers realise some profits, which seems to have happened in this case.

The last month has also seen a seasonal resurgence in coronavirus infections in North America and Europe, with new lockdowns and other restrictions in some areas, which could curb growth in oil consumption.

Rising inflation has sharpened expectations the major central banks will have to start raising interest rates earlier than previously anticipated, which could additionally be negative for oil consumption next year.

At the same time, there has been an increasing amount of commentary about a rise in US shale production boosting global crude supply in 2022.

Even before the SPR announcement, hedge funds and other money managers sold the equivalent of 134 million barrels of petroleum futures and options in the six weeks between Oct 5 and Nov 16.

It is impossible to determine how many of these sales were in anticipation of the SPR announcement and how many were related to other changes in the consumption and production outlook.

But the most probable answer is that hedge fund sales were motivated by SPR anticipation, profit-taking, a deteriorating oil consumption outlook, and expectations for faster shale output growth in combination.

Lessons from 2011

The last major coordinated stock release was announced in June 2011, when members of the International Energy Agency agreed to release 60 million barrels in response to the disruption of Libya’s oil exports by civil war.

The release caused an immediate but modest fall in spot prices and a larger fall in spreads, though both had been falling before the announcement, and the further falls were wholly reversed within a few weeks.

Post-event analysis of the market reaction to the stock release in 2011 suggested several lessons that are applicable a decade later :

1. Stock releases have only a limited and short-term impact on prices and spreads. They may alter the trajectory of the market compared with a scenario in which no stocks are released but this is unclear.

2. Stock releases take so long to organise that by the time they are announced prices are often falling as the worst of the sense of crisis was already passed.

3. Oil traders are instinctively sceptical about the effectiveness of government intervention, especially using a finite stock of reserves to influence prices based on a continuous flow of production and consumption.

4. Policymakers therefore need to have all the details of the release worked out in advance of the announcement to create a convincing narrative around intervention and maximise the psychological impact of reserve releases.

The White House appears to have learned some but not all of these lessons. US officials were ready to announce the detailed mechanics of SPR sales immediately on Tuesday.

But the lack of firm commitments from Japan, South Korea and especially China in the first 24 hours after the announcement has undermined the psychological impact international coordination was supposed to provide.

Ultimately, the confirmed release of less than 60 million barrels, with a vague unconfirmed promise of more, but still probably less than 75 million in total, was less than traders anticipated, causing prices to rebound higher.

Internet Explorer Channel Network
Asia's Tech News Daily
News Related

OTHER NEWS

Hainan to recycle up to 85% of renewable resources by 2025

By that date, more than 95% of populated areas in the province will establish their own recycling facilities Read more »

Media: Hainan authorities to help develop digital zone in Fuxingcheng Science City

The secretary of the Hainan Province Industry and IT Technology Party Committee noted that "this science city is making progress every year, moving to stages of increasingly intensive development." Read more »

Omicron adds economic risks, inflation uncertainty: US Fed chief

WASHINGTON (BLOOMBERG) – Federal Reserve chair Jerome Powell, in his first public remarks on the Omicron variant of the coronavirus, said it poses risks to both sides of the US ... Read more »

AMC, Sony to reward advance purchasers of Spider-Man tickets with NFTs

There would be 100 designs in over 86,000 digital assets on the WAX blockchain to be given to the first movie ticket purchasers in all American locations. AMC Entertainment and ... Read more »

Ridesharing firm Uber resolves trademark dispute with NY-based Uber ad agency

US District Judge Kevin Castel found that Uber Inc made plausible claims that Uber Technologies infringed and diluted its trademarks. New York marketing agency Uber Inc agreed to dismiss its ... Read more »

OPEC+ postpones monitoring meeting to assess effect of new coronavirus strain on oil

At the same time, the OPEC+ ministerial meeting will be held on December 1 as planned Read more »

S. Korea's Hyundai, Galleria departments to host upcycling, animal protection campaigns

Hyundai Department Store will be collecting used transparent plastic bottles while donating 2,000 won for each participating customer to protect Eurasian otters. South Korean department store chain Hyundai and Galleria ... Read more »

Kremlin does not see risks for Nord Stream 2 from new US sanctions

In mid-November, it was reported that the certification of the Nord Stream 2 operator had been suspended until Nord Stream 2 AG, headquartered in Zug, Switzerland, transfers the main capital relating to the German segment to a German subsidiary Read more »

First flight to repatriate Russians from South Africa due December 3 — consulate general

On Friday, the WHO designated the B.1.1.529 variant as a "Variant of Concern" and assigned it the Greek letter Omicron Read more »

Russian Finance Ministry warns NPP construction in Hungary could face political obstacles

Rosatom and Hungary’s MVM signed a contract for the construction of new power units belonging to the Paks nuclear power plant in December 2014 Read more »

Indian Premier League teams banned from inking commercial deals with crypto, betting firms

The ban is a big blow to several IPL teams reportedly close to striking deals with cryptocurrency firms for next year’s campaign. The Board of Control for Cricket in India ... Read more »

Parliamentary subcommittee passes bill on delaying enforcement of virtual asset taxation

SEOUL, Nov. 29 (Yonhap) — A subcommittee of the National Assembly’s tax committee on Monday passed a bill on postponing the planned taxation of cryptocurrencies and other virtual assets. The ... Read more »

State pension fund logs 8 pct return through Sept.

SEOUL, Nov. 29 (Yonhap) — South Korea’s state pension fund posted a return rate of 8 percent in the first nine months of the year, aided by healthy gains from ... Read more »

Russian exporters focus on supplying ‘green' energy to China — Sechin

It was noted that the energy sector would remain its key role in relations between Russia and China Read more »

Challenges to sustainable financing in Singapore can be mitigated: Indranee

Minister Indranee Rajah said that Singapore can catalyse the flow of capital towards sustainable development in Asia. SINGAPORE – Mobilising sustainable finance has its challenges, but Singapore is taking measures ... Read more »

Russia does not see need for urgent oil market measures due to new coronavirus variant

The next OPEC+ ministerial meeting is still scheduled for December 2, Russian Deputy Prime Minister Alexander Novak said Read more »

Russia can fully increase oil production under OPEC+ deal, says Deputy Prime Minister

Earlier, doubts about Russia's ability to increase oil production within the OPEC+ quota were expressed by some experts Read more »

About 400 Russian companies launch investment projects in Murmansk region — governor

According to Andrei Chibis, the three regimes: the Russian Federation’s Arctic Zone, the Capital of Arctic advance-development territory, and regional incentives for small businesses offer unprecedented, unique conditions for business Read more »

Net direct tax revenue rises 68% to Rs 6.92 lakh crore till November 23

Representative image The net direct tax collection grew nearly 68 per cent during April 1 to November 23 to more than Rs 6.92 lakh crore, Minister of State for Finance ... Read more »

Investments in Northern Sea Route logistics complex to make $1.5 billion

The complex will include the Vitino seaport and oil base, the Tuloma sea terminal for mineral fertilizers, the Udarnik terminal, the Rosatom Cargo transport-logistics hub, and the Lavna complex to handle coal and general cargo Read more »

Commerce Ministry recommends continuation of anti-dumping duty on Chinese tiles

The commerce ministry has recommended continuation of anti-dumping duty on Chinese tiles, used for covering floors and walls in buildings, for five more years with a view to guard domestic ... Read more »

Shares of Doosan Heavy plunge on reports of new share sale

By Nam Kwang-sik SEOUL, Nov. 29 (Yonhap) — Shares of Doosan Heavy Industries Co. tumbled Monday after it announced its plan to sell new shares to raise 1.5 trillion won ... Read more »

Global tourism to recover to pre-pandemic level no earlier than 2023 — UN

The experts forecast a very positive rise conditioned by a high delayed demand for travel in the second and third quarters of 2022, Secretary General of the World Tourism Organization Zurab Pololikashvili noted Read more »

Russia has oil reserves for 30 years, gas for 50 years — Novak

According to Novak, despite the energy transition process, Russia is confident in the possibility of selling its oil and gas reserves Read more »

Russia to employ AI for personality assessment on social media

"The use of digital footprints offers great opportunities to assess people's personalities and predict their behavior without conducting psychological tests that usually require the voluntary consent of those tested," the document explains Read more »

Parties agree to delay taxation on crypto gains

gettyimagesbank By Park Jae-hyuk The ruling and main opposition parties reached an agreement on the idea of delaying taxation on the gains from cryptocurrency trading to 2023 from the initially ... Read more »

Bridge gap between policy, theory to deal with questions on AI

Hwang Jee-seon By Hwang Jee-seon The human imagination, which projects our strongest desires and worst fears, has long been preoccupied with the idea of artificial intelligence (AI). Films, such as ... Read more »

Korea to be less innovative with universal basic income

Samuel Wilson By Samuel Wilson There is a growing debate in many countries around the world about whether or not to start a universal basic income (UBI) system, which could ... Read more »

Basic income system promotes social justice

Lee Yoon-ki By Lee Yoon-ki With the outbreak of the COVID-19 pandemic, Korea’s economy not only recorded one of its worst economic contractions since the Great Recession of 2008, but ... Read more »

Investments needed to retrain workers to adapt to AI

Kyle Wardwell By Kyle Wardwell Between 2016 and 2030, artificial intelligence (AI) and automation may displace up to 800 million workers globally, according to estimates and modeling done by McKinsey ... Read more »

Fundamental solution for AI lies in educational reforms

Lee Jae-hyeon By Lee Jae-hyeon Artificial intelligence (AI) is one of the most overused terms that dominate heated discussions on future societies. The term carries hype and excitement towards an ... Read more »

Basic income is myopic antidote to 'Hell Joseon'

Koh Woo-sung By Koh Woo-sung In 1953, the Korean Demilitarized Zone (DMZ) split Korea in half. Decades later, one half evolved into an economic beacon iconized by a vibrant market ... Read more »

(LEAD) Samsung Electronics revamps human resources system to nurture talent, flexible corporate culture

(ATTN: UPDATES with more details in paras 3, 6, 8, 13; ADDS photo)By Woo Jae-yeon SEOUL, Nov. 29 (Yonhap) — Samsung Electronics Co. said Monday it has overhauled its employee ... Read more »

S. Korea's female population rises 1.1 pct over 5 years

SEOUL, Sept. 29 (Yonhap) — South Korea’s female population expanded slightly over 1 percent over the past five years to surpass the 25 million mark in 2020, census data showed ... Read more »

Samsung Electronics revamps human resources system to nurture talent, flexible corporate culture

By Woo Jae-yeon SEOUL, Nov. 29 (Yonhap) — Samsung Electronics Co. said Monday it has overhauled its employee evaluation and position system to spot and nurture talent and improve productivity ... Read more »

Petrol, diesel prices on November 29: Fuel rates remain unchanged

The price remained the same on November 29. Diesel price also stayed unchanged at Rs 86.67 per litre on the day. Petrol and diesel prices remained unchanged for the 25th ... Read more »

A wine rack on rails? UK businesses seek solutions to shortages

A freight train being loaded with nearly 650,000 bottles of wine at Tilbury Docks, east of London, on Nov 27, 2021. TILBURY (NYTIMES) – It is called the “wine train,” ... Read more »

S. Korea to closely monitor financial markets amid worries over omicron-sparked volatility

SEOUL, Nov. 29 (Yonhap) — South Korea will closely monitor global and local financial markets for any impact from the emergence of the omicron variant of the coronavirus and take ... Read more »

Seoul stocks open lower on virus worries

SEOUL, Nov. 29 (Yonhap) — South Korean stocks opened lower Monday, largely as investors wondered how the omicron variant of the coronavirus would affect the global economic reopening. The benchmark ... Read more »

Supply chain chaos sparks fried chicken shortage at Japan stores

TOKYO (BLOOMBERG) As Americans celebrated Thanksgiving with turkey prices at record highs, another poultry dish that’s a beloved holiday tradition could be in short supply: fried chicken in Japan. Convenience ... Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic