Reserves sale may give U.S. oil an edge over OPEC+ crude in Asia

Oil barrels Source: iStock/Guven Polat

The U.S. move to shoulder the bulk of oil sales in a joint reserves release is making its crude cheaper, bringing it closer to being viable for Asian customers to opt for American cargoes over Middle Eastern supplies.

The 50-million-barrel release announced by President Joe Biden is weighing on West Texas Intermediate. The U.S. benchmark is falling against Brent and Persian Gulf markers such as Dubai and Murban since the announcement of the joint sales, which also involve China, Japan, South Korea, India and the U.K.

The level of cooperation between major oil buyers is unprecedented in a market that’s dominated by the OPEC+ alliance, and the U.S. is in a unique position because it’s a big producer and consumer. Buyers have historically had little say in the supply and cost of crude, which is dictated by sellers via monthly sales and official prices. 

The January contract for WTI benchmark slipped to more than $4 a barrel below Murban crude after the coordinated reserve release, data compiled by Bloomberg show. That’s a much wider discount compared with early November. The U.S. marker also fell sharply against global benchmark Brent crude.

The price of physical WTI Midland cargoes delivered into Asia is now slightly above that of Murban from the United Arab Emirates, with the arbitrage trade becoming closer to being profitable, according to traders and an analyst. OPEC+ could also see more competition for its high-sulfur crudes. The majority of the SPR oil from the U.S. is likely to be medium-sour grades, according to Wood Mackenzie Ltd.

Officials at the OPEC+ alliance, which holds its next regular meeting on Dec. 2, have warned that they’re likely to respond to the U.S.-led initiative. 

© 2021 Bloomberg L.P.

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