Oil Pares Gains On Fears That Biden's SPR Strategy Is Ineffective

Meanwhile, the UAE said oil would be twice as expensive without OPEC: File Image/Pixabay

The growing prospect of U.S. president Joe Biden tapping into his country's Strategic Petroleum Reserves as a comeback to the Organization of the Petroleum Exporting Countries (OPEC) earlier refusing to boost output and give consumers a break at the pump caused forward momentum in crude trading on Monday to slow almost to a standstill.

Traders pared gains of West Texas Intermediate of as much as 1.7 percent down to 0.8 percent on the worry that if Biden does indeed tap the SPR, he will only have access to about 60 million barrels, little more than three days' worth of average U.S. consumption – and not nearly enough to affect pump prices meaningfully.

John Kilduff, founding partner at Again Capital, said only a coordinated effort from the U.S. with other consumer countries could substantially bring prices down: "They've got to go pretty big because they want to try to make an impact….if they can do that, then you'll see a reprise of a sell-off we saw last week; but if it falls short it will be a buying opportunity."

Increasing traders' jitters was that stocks in the SPR fell by 3.14 million barrels last week, the biggest weekly drop since July 2017, according to the Department of Energy.

Moreover, Daniel Yergin, vice chairman of IHS Markit Ltd., pointed out that talk of releasing crude from the reserve always comes up anytime gasoline prices are high, and he added that it was strange that the leader of one of the world's top crude producers isn't paying more attention to domestic shale.

Yergin said, "There's a basic antagonism and lack of interest – indifference - to the industry, although it has 10.5 million people working in it."

This echoed the sentiments of Amrita Sen, director of research at Energy Aspects, who last week said, "We ultimately need more investment in the upstream that give us more supply – and that's not coming."

Indeed, Biden's blustering aside, there is growing sentiment that OPEC is behaving responsibly: Suhail Al-Mazrouei, energy minister for the United Arab Emirates, on Monday became the latest person to note that the oil market has been far calmer than those for natural gas and coal thanks to OPEC, and that without the cartel prices may be double than what they are now.

He added that OPEC+ should remain cautious because the oil market will switch to a surplus in the first quarter of next year, and he went on to blame high gas and coal prices on governments discouraging investment in fossil fuels in their zeal to transition to renewable energy too quickly.