Oil Rises As Battle Lines Between OPEC and U.S. Are Drawn

Meanwhile, Asian flight demand surges despite Covid blues: File Image/Pixabay

Crude trading on Monday resumed an upward trajectory, although minimally, in anticipation of U.S. president Joe Biden announcing a release of oil from that country's Strategic Petroleum Reserve in conjunction with several other countries as soon as Tuesday, according to insiders.

Japan has determined it can use its stockpiles legally as long as it taps surplus supply, according to TV Asahi, and government officials in India said if it releases emergency oil stocks it will be a coordinated step with other major consumers.

China and South Korea have indicated they too will release SPR reserves in tandem with the other nations.

Trading was also influenced by speculation that the Organization of the Petroleum Exporting Countries (OPEC) may not add as much supply as originally intended if the U.S. release proceeds: the cartel called the planned SPR releases unjustified by current market conditions and said it would address the issue during a meeting next week.

John Kilduff, founding partner at Again Capital, remarked, "Certainly, OPEC and the Saudis can win this in that they are holding all the cards: they can keep more oil off the market than a SPR release can put on the market.

"If you see WTI get under $70, then I would expect a response from OPEC+."

West Texas Intermediate on Monday rose 81 cents to settle at $76.75 per barrel, while Brent added 81 cents to end at $79.70 per barrel.

Bloomberg noted that if the SPRs of multiple countries are tapped, it would "represent the largest discharge of stockpiled crude from major economies made outside the auspices of the International Energy Agency; previous global efforts to tap stockpiles - such as the 2011 release of 60 million barrels in the wake of unrest and supply disruptions in Libya - were coordinated by the IEA, of which China isn't a member."

While much was made on Monday of the battle lines being drawn between OPEC and the ad hoc U.S. coalition, Joseph McMonigle, secretary-general of the International Energy Forum, wrote in a statement, "I anticipate OPEC+ energy ministers will maintain their current plan of adding more supplies to the market gradually; however, certain unforeseen external factors such as a release of strategic reserves or new lockdowns in Europe may prompt a reassessment of market conditions."

Meanwhile, while some analysts were spooked by renewed Covid lockdowns in some countries, demand seems to be robust: on Monday cash premiums for jet fuel rose by a cent to 12 cents per barrel to Singapore quotes, while the December/January time spread for the aviation fuel in Singapore widened its backwardation to trade at 21 cents per barrel.

Energy Aspects said in a note, "Flight numbers in Asia outside of China have risen by almost 20 percent from the start of November, as Thailand and Cambodia join the growing list of countries opening their borders for vaccinated travellers, with many more targeting the year-end holidays as a chance to slowly bring back capacity.

"Asian flight numbers are now one-third of pre-virus levels ... giving plenty of room for further demand increases as long as case counts remain under control."