After talks with allies and partners, US President Dr. Joe Biden March 31 announced the release of the largest oil reserves in history, putting an average of one million extra barrels per day on the market – for the next six months – to serve as a further supply bridge in the months ahead.
“The scale of this release is unprecedented: the world’s oil reserves have never been released at this rate of 1 million per day for this length. The release of this record will provide a historic amount of supply to serve as a bridge to the end of the year when domestic production will increase, “the White House said in a press release.
The U.S. Department of Energy will use the revenue from the release to restore strategic petroleum reserves in future years. “This will provide a signal of future demand and help stimulate domestic production today and ensure continued readiness of strategic petroleum reserves to respond to future emergencies,” the White House added.
Energy Consultant Johannes Benigni In a phone interview with New Europe on March 31, he said that the decision to release 1 million barrels per day from the US Strategic Petroleum Reserve was helping to further supply the market. “Usually the release of strategic petroleum reserves is not necessarily a useful tool because most of the time when it happens the price is just the opposite. But it could have a huge impact. So, of course, if the current situation persists, we could lose about 2-2.5 million barrels of Russian oil, which is a lot more. If they tighten sanctions, of course, it could be even more Which is the key question here, “said Benigni from Vienna.
“The extra million barrels per day is excellent. The question now is whether the markets are somehow managing because demand has declined. Our use in China has been greatly reduced due to the Kovid restrictions. We have reduced the demand in Europe due to higher petrol prices. So, that’s all added up. But we are also in a season where demand is not so strong. This is going to change in the next few months so I would say that from now on one or two months everything will be ready to get more supplies for the summer and the run will increase. That means supply is going to be more relevant then, “said Benigni.” Much will depend on how the market develops and how sanctions continue to evolve. ” “But one million barrels a day is fine,” he quipped.
Meanwhile, the Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC +, agreed in a video conference meeting on March 31 to abide by its existing agreement and increase monthly gross domestic product for the month of May by 432,000 barrels.
“They stick with it because they don’t really offer too much extra oil,” Benigni said. “And they don’t want to get involved in politics either. OPEC is very clear that they want to stay out of the big debate. They don’t want to do the politics of product delivery and I think that’s a wise decision, ”he argued.
OPEC said in a statement that the continuation of the fundamentals of the oil market and the consensus on the outlook point to a more balanced market and that the current instability is not due to fundamentals, but to ongoing geopolitical developments.
According to Benigni, the supply problem is driven in part by psychological causes and in part by the actual fundamental lack of supply. “Of course, there have been talks in the past about sanctions on Russian oil,” he said. Consequences that Russian oil buyers did not purchase. Because they fear that their funds may be blocked during the transfer. One of their problems is that it becomes difficult to rent a ship, the insurance rate going through the roof. All of this basically forces them to stay away from Russian oil, “he said on March 19. “Now that Russia is such a large supplier of about 7 million barrels of oil per day, 4.5 million crude and condensate and 2.5 million refined products. , It is very difficult to ignore. Today we see that about 30% of Russian refining capacity is on maintenance. This means that they are not supplying normal products, especially diesel from the market, so we have a real shortage of supplies, partly because buyers are afraid, partly because sellers can’t sell, “Benigni explained.
Market volatility has created another problem in the wholesale market, he noted. “Large trading houses, when they buy and sell oil, they usually hedge the position. When you hedge on an exchange, you usually have to provide some security. This is called margin money. So, when you buy a derivative product on an exchange, you usually keep 10% of the contract price as a parallel. Market volatility has increased the need for those securities and is almost matching the price of a commodity, “Benigni said.” This means it is almost impossible for a trader to hedge his risk because it becomes so expensive and so it happens that trade is reduced. That means we are facing a real, real big problem driven in part by psychological and related problems that are creating instability and instability which is creating more margin money uncertainty and on the other hand refineries are not producing and buyers are not buying and oil is not flowing and So consumers see that the price of petrol station is very high. “