Uncertainty Over SPR Being Tapped Causes Oil Prices To Climb Higher

Meanwhile, analysts think 2022 will see a return to more normal market balances:File Image/Pixabay

Oil prices on Tuesday resumed  their upward trajectory due to a report from the U.S. Energy Information Administration causing the White House to think twice about releasing oil from the country's Strategic Petroleum Reserves.

West Texas Intermediate rose $2.22 to settle at $84.15, while Brent rose $1.35 to settle at $84.78 per barrel.

The EIA report echoed predictions from many analysts that the market will be oversupplied early next year and prices will fall in December from current levels to below $80 per barrel and perhaps as low as $62 by the end of 2022; the White House stated that it would use price forecasts in the report to determine whether to release oil from the reserve.

Spencer Vosko, director for crude oil at Black Diamond Commodities, said, "There is no real reason for an imminent release" and went on to note that "The bigger question here is production: while U.S. shale producers are showing constraint it looks like global supplies could be on the mend."

Rebecca Babin, senior energy trader at CIBC Private Wealth Management, added, "Odds of a coordinated SPR release are shrinking, however there is a political element to this issue and prices at the pump remain very high, so I would not discount this chance of SPR release entirely on this report."

Addressing the politics directly, Bob Yawger, director of energy futures at Mizuho, pointed out that the report "gives president Joe Biden plenty of cover to do nothing and claim he is waiting for bearish forecast to play out."

Meanwhile, the furor over current prices remains: Russell Hardy, chief executive officer of Vitol Group, said market supply and demand is "going to be reasonably tight" for the next 12 months and a price spike to $100 per barrel is "certainly a possibility."

Ironically, Saudi Aramco, whose home country of Saudi Arabia led the Organization of the Petroleum Exporting Countries (OPEC) to maintain instead of increase output, warned on Tuesday of reduced spare capacity.

Chief executive officer Amin Nasser said surplus capacity of the equivalent of 3 million to 4 million barrels per day (bpd) will drop next year as demand for jet fuel increases along with a climb above 100 million BPD in consumption.

Nassar added that the situation is exacerbated because not enough oil companies are trying to raise their output capacity.

Still, a nearly 15 percent rally in WTI prices since July is luring some private shale producers to boost output, and American production is expected to rise to average 11.9 million bpd in 2022.