Crude Oil Forecast: WTI Price Drop Extends on US SPR Release, Brent Losses Outpace
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Crude Oil, WTI, Strategic Petroleum Reserve, WTI/Brent Spread - Talking Points
- Oil prices extend losses from overnight in Friday’s Asia-Pacific session
- President Biden SPR release action to meet around 5% of US demand
- US exports may rise as Brent continues to trade at premium vs WTI
Oil prices are moving lower through Asia-Pacific trading, extending overnight losses. WTI crude prices are down around 1.5%, but Brent prices – the global benchmark – are nearly 5% lower. The slide lower came after President Joe Biden announced that the United States would release one million barrels of oil per day from the Strategic Petroleum Reserve (SPR) for up to 180 days.
That would potentially see 180 million barrels of oil hit the market over the next six months, accounting for about 5% of total US Demand, assuming 2021 levels of consumption. However, demand is likely to increase this year amid nearly non-existent Covid restrictions across the country. The extra oil should help temper prices, although the volatile nature of the market amid the evolving situation in Ukraine makes it harder to forecast demand and supply levels.
The move from the United States may also signal that US intelligence and the Biden administration believe the conflict in Ukraine may not see a quick resolution. China and India are reportedly buying Russian oil, although at a steep discount. The geographic positioning of global supply lines, however, leaves the global benchmark, Brent, more susceptible to sanctions-related supply disruptions. That may explain why Mr. Biden’s announcement hit the global benchmark harder.
The differential in performance over recent days has extended the discount WTI is trading at versus Brent. WTI crude prices are trading at a discount of over $7.10 per barrel after surging as high as $11.35 a barrel, the largest since April 20, 2020. The discount may bolster US crude exports as foreign buyers scramble to find the cheapest product available. That could pull oil away from Cushing, Oklahoma, and toward the gulf coast, ultimately reducing US inventory levels.
Such a scenario could partially negate the aim of Mr. Biden’s SPR actions. At the same time, however, it may also encourage US producers to ramp up production at a faster pace. Increased production would bode well for lower prices beyond the short term. Traders may be inclined to keep a closer eye on US export figures and rig counts in the coming months as the situation plays out.
Brent/WTI Spread – Weekly Chart
Chart created with TradingView
--- Written by Thomas Westwater, Analyst for DailyFX.com
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