Energy: US SPR release and refill
Oil prices came under pressure yesterday after reports that the US would announce a further release from its Strategic Petroleum Reserve. The latest release is expected to be announced today by President Biden and would be for 15MMbbls. However, it is important to point out that this release would be part of the initial 180MMbbls announced earlier this year and would be the final tranche of that volume. Therefore, given that this release is already factored in, the price impact should be minimal. However, there are reports that the US administration is not ruling out further releases through the winter months. The US administration will find it difficult to compensate for the OPEC+ supply cuts with just SPR releases. In the medium- to longer-term, SPR releases are supportive for the market, given the need for the US to refill. Bloomberg is reporting that the US administration is also planning to start refilling the SPR when WTI trades at or below US$67-72/bbl. This should provide another floor to the market, although the key question is whether OPEC+ would allow prices to trade down to these levels or intervene (if needed) to keep prices near current levels.
The latest data from the API shows that US crude oil inventories fell by 1.27MMbbls over the last week, while the market was expecting crude stocks to increase by around 2.5MMbbls. In addition to the crude draw, the API also reported that gasoline and distillate inventories decreased by 2.17MMbbls and 1.09MMbbls, respectively. Overall, these numbers were moderately constructive and appear to be offering some support to the market in early morning trading today. The more widely followed EIA numbers will be released later today.
European natural gas prices continue to come under pressure. The TTF Nov-22 contract fell by a further 11.5% yesterday, leaving the market to trade at a little over EUR113/MWh. The market has fallen by around 40% now since the start of the month. Warmer than usual weather for this time of year and the fact that EU storage continues to fill up (currently 92% full) is easing concerns over prompt tightness in the market. However, prices from Dec-22 through to Apr-23 are trading in excess of EUR140/MWh. The forward curve continues to reflect concerns over expected tightness through 2023.
The European Commission has laid out its latest proposals for the EU energy markets, which for now does not include a gas price cap. Instead, the commission is proposing a dynamic price limit for TTF, which will be temporary and only used as a last resort. In addition, the proposal includes upper and lower daily price limits on energy derivatives to try to address volatility in markets. Furthermore, the commission wants to push the idea of joint gas purchases between member states, in the hope this would give Europe more leverage and prevent EU countries from competing against each other for supply. Finally, given the changing supply dynamics in the European gas market (the EU turning increasingly to LNG), the commission proposes a new LNG benchmark, rather than using TTF which reflects regional infrastructure bottlenecks. These proposals will be discussed by EU leaders who meet later this week.
|
