Oil steadied after four weeks of losses as traders weighed the chance that the U.S., China and Japan will tap national crude reserves as concerns over accelerating inflation intensify.
Futures in New York traded near $76 a barrel after losing almost six per cent last week. President Joe Biden has been talking about a possible release from the Strategic Petroleum Reserve for several weeks, and Japan’s TV Asahi reported Monday that Tokyo is preparing to release crude from its national stockpiles as part of a joint effort with the U.S.
The return of virus restrictions in Europe, meanwhile, suggests there could still be a threat to global energy demand from a resurgent Covid-19. Austria was back in full lockdown on Monday, while Chancellor Angela Merkel said the latest surge in infections is worse than anything Germany has experienced so far.
“The debate about releasing strategic oil reserves continues,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. At the same time, “oil demand could be dampened considerably” as “the virus spreads much more rapidly in the winter.”
Oil has fallen from a high in late October as speculation increased that the U.S. and other countries would release reserves. Any national sales will need to be fairly substantial to move prices further, with Goldman Sachs Group Inc. saying last week that the impact of around 100 million barrels of reserves auctions was already priced into the market.
An internationally coordinated release would, however, send a powerful message to the OPEC+ alliance, which has so far resisted calls to restore supply faster. Biden and Chinese President Xi Jinping talked about the merits of utilizing strategic reserves during their virtual summit last week. China indicated last week that it was working on another sale from its national inventories.
- West Texas Intermediate for January delivery slipped 0.2 per cent to $75.84 a barrel on the New York Mercantile Exchange by 12:45 p.m. London time; the front-month contract tumbled 3.7 per cent on Friday.
- Futures lost 5.8 per cent last week.
- Brent for January settlement fell 0.2 per cent to $78.75 on the ICE Futures Europe exchange after declining 2.9 per cent on Friday.
Japan’s Oil Stockpiling Act doesn’t allow for the sale of reserves due to high prices, but both the government and the private sector currently hold more reserves than the minimum required under the law, according to a report over the weekend in the Yomiuri newspaper, which cited government sources.
Tokyo has determined it can use its stockpiles legally as long as it taps surplus supply, according to the TV Asahi report, which cited an unidentified government official. It didn’t provide further details on how much oil would be released.
© 2021 Bloomberg L.P.