The Commodities Feed: US SPR release in doubt

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Energy

The oil market has continued to move higher and Brent is trading back above US$85/bbl this morning. This follows the EIA’s Short Term Energy Outlook (STEO), which showed that the oil market is set to be oversupplied next year, suggesting weaker prices in 2022. This should take some pressure off the US administration to act in order to bring oil prices lower in the near term. The US government was going to assess the STEO before making any decision on a potential release from strategic petroleum reserves and it had been suggested that President Biden may make an announcement this week regarding high oil and gasoline prices. This latest report makes it less clear if the Biden administration will still take action to ease prices.  However, we would still not rule out an SPR (strategic petroleum reserve) release, particularly if prices stay at these stubbornly high levels.

The EIA estimates that the oil market will be oversupplied by a little more than 500Mbbls/d in 2022, which compares to being undersupplied by around 1.6MMbbls/d in 2021. As a result, the EIA expects Brent to average US$72/bbl next year, compared to a little over US$82/bbl in the final quarter of 2021. As for US crude oil supply, the EIA estimates that oil output will average 11.9MMbbls/d in 2022, up around 780Mbbls/d from 2021.

Offering further support to the market this morning were the latest API numbers, which showed that US crude oil inventories declined by 2.5MMbbls over the last week.

Finally, European natural gas prices came under pressure yesterday. TTF prices fell by more than 8%. There were a  number of factors behind this weakness, including an announcement from Gazprom that they have approved and started a plan for gas injections into 5 storage facilities in Europe for November. There are also signs of increased Russian gas flows into Europe, which is helping to ease some concerns over the tightness in the European market. In addition, there were reports that the Groningen gas field in the Netherlands may have to temporarily increase output due to construction delays in a processing plant for imported gas, meaning the potential to rely more on domestic output.