Oil climbed, erasing an earlier loss, as a landmark plan from consumers to tap their strategic oil reserves was less severe than markets expected.
Futures in New York wiped out losses to trade above $77 a barrel after Tuesday’s statement from the White House. While the headline size of the US release is large, a significant chunk of the crude will be borrowed — to be returned later — leaving traders expecting tighter balances down the line. The US is making the move in concert with China, Japan, India, South Korea and the UK.
Oil prices have hit multiyear highs in recent months amid a global energy crisis that’s added hundreds of thousands of barrels a day to consumption, while the world economy is grappling with surging inflation. The decision puts major consumers on a collision course.
The news put pressure on the US market, with so-called time-spreads for nearby months weakening sharply after the announcement. However, outright prices traded higher than before the confirmation of the landmark move. That was because the total volume had been seen as largely priced in, and much of the supply is set to be returned at a later date.
“This is not going to solve much,” said Ole Hansen, head of commodities strategy at Saxo Bank. “Only 18 million barrels for real, while the rest to my understanding will be loaned out and bought back at a later stage.”
The administration is prepared to take further, unspecified steps, if needed, the White House said. When asked about the potential for a US export ban in the future, the administration continued to suggest that all
options are on the table.
Focus will now turn to how the Organisation of Petroleum Exporting Countries and its allies will react to the release when they gather next week.
While the top consuming nations are preparing to release oil from their national reserves to rein in rising prices, crude is actually cheap relative to other financial assets, according to JPMorgan Chase & Co.
India’s oil refineries increased crude processing to near full capacity in October as demand for petroleum products rebounded on rising economic activity and seasonal festival demand.