Tags: Commodity Market

Biden’s Strategy Backfires, Oil in the Hand of Bulls

President Biden’s pledge to pressure oil producers to lower prices has already backfired. The US administration’s attempt to coordinate a strategic petroleum reserve release from key importers to enhance supply did not impress oil markets. 

Some experts believe an SPR release will lower oil prices. However, most analysts feel it will only be a transitory effect that will eventually result in a price surge. Members of OPEC+ have avoided engaging with Biden’s proposal because they recognized it as faulty from the outset. The discharge of 50 million barrels of petroleum from the US Strategic Petroleum Reserve never affected the oil prices. Analysts in the United States are now concerned that Biden’s efforts would result in increased oil prices.

What do other nations think of Biden’s strategy?

Other OECD nations, like Japan, South Korea, and the United Kingdom, initially supported Biden’s idea until it was speculated that China and India would also release oil from their stockpiles. An obvious and possibly price-threatening glut would have to be on the horizon to force a market down truly.

 There is now no such concern, with OPEC forecasting a modest excess in 2022. Under Biden’s proposal, the cumulative commitment of all SPR releases was approximately about 100 million barrels or nearly one day’s world output. That discharge would most likely take several weeks, resulting in an increased daily flow of 4-5 million BPD.

Markets were by Biden’s early remarks. Hence, it appears that this tactic will prove to be optimistic for oil prices in the long run. Biden’s proposal appears to have considered market fundamentals. However, it appears to have overlooked OPEC+’s current effect and production capability.

 While Saudi Arabia and the United Arab Emirates have excess production capacity, other OPEC and non-OPEC countries fail to meet their agreed-upon production targets. Although it is uncertain how OPEC would respond to Washington’s plan, speculations have already surfaced. Saudi Arabian, UAE, and Russian oil strategists may decide not to boost production quantities in the following months or just adhere to the plan.

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