US Weighing The Largest Ever Drawdown Of Oil Reserves - Why Now & What Does It Mean For Oil?

OK, hi everyone, hope you're doing well. Thought I'd quickly jump on, me and my mate Joe, and just have a quick conversation about some of the headlines that are hit that I'm sure you've seen, which were that Biden team is weighing a massive release of oil to combat inflation. And the impact of that has been pretty severe in the overnight session. Just looking here at WTI crude futures on a 5-minute candlestick, and you can see here when the news broke during the overnight Asia-Pac session. Around 1 AM London time and prices dropped over a period of about half an hour from ranging from well into a 107 handle all the way down to around 102 and actually dropped when European traders came in very early this morning, hit the eventual low at around 100 spot 52 in the futures market. Did have quite an aggressive rally when Europe then started to really filter in, but we've started to drift lower now going into the North American crossover. So we have, of course, been seeing some very wicked price moves over the Russia-Ukraine kind of crisis on the commodity and energy prices for sure. But this is definitely one of the biggest moves that we've had of late. And so let's discuss exactly what has happened. So just get you up to speed. This at the moment is all according to sources. So none of this has been formally announced as yet. Perhaps it might do by the time you watch this. But a couple of things to be aware of then. So what they're talking about is weighing a plan to release roughly million barrels of oil a day from the US Strategic Petroleum Reserve, the SPR. And that's according to people familiar with the matter. Now, the details here is that the total release may be as much as 180 million barrels, which is pretty huge. It's way bigger than what they've done on the previous two releases in recent months, which I'll talk about a bit more in a moment. The final decision hasn't been reached as yet, according to these sources, on the global releases. However, hints have come that an announcement might come from the White House specifically today. And that is super important because guess what's happening today? Of course, it's the OPEC+ monthly meeting, and they're very much expected to stick on their predetermined kind of path, which has been gradually returning a much more modest amount of around 400,000 barrels per day each month as the world's kind of started to see the back end of, of COVID Now, for Team Biden, of course, then making an announcement of such degree as what's come out overnight, it happening on the day of the OPEC meeting is completely strategic, um, because for Biden, he at the moment is under immense pressure. His polling basically has never been worse. We had an NBC poll on Sunday that showed that only 33% of those surveyed approved of his performance on the economy, and 38% of those people were saying it's particularly because of inflation. So at the moment we have got record high levels up around the 8% margin in, in the US, and likelihood is going to go even higher than that. And that is hurting the consumer in America at the moment. And so what Biden's team's strategy likely is with this announcement is to pivot the optics that he is doing what he can. He's really upping the ante in the size of the release, that the US are doing their part. The US have been pressuring the likes of Saudi Arabia and other OPEC members for some time. And he'll be able to say that, look, it's because of them, which is actually making this an even worse situation. I'm fighting your corner, doing what I can. So the optics definitely are very much a big component of why this has happened specifically timing-wise today. And of course, all of this comes as Biden's really fighting for his life at the moment from his campaign for the midterms, which the countdown is on. They are already coming in a few months away. And of course, a lot of people talking about that inversion in the yield curve. The Fed are going to be rapidly raising rates through 2022. Is that going to tilt the economy back into a slowdown? This is all major challenges for Biden at the moment. And so hopefully that political, political ambition is kind of dictating some of these measures that are coming out of the White House at the moment. The question then, I guess, is, you know, what will 180 million barrel oil release mean for the oil market overall? Biden, as I said, has already done two large releases. Those were in the last 6 months. He did 50 million back in November and 30 million back in March after the Russian invasion that we've had. As of March 25th, so just a week or so ago, the reserve in America had 568 million barrels remaining, according to the US Energy Department. So puts it in a bit of context. Of around that figure of 180 as to what they have at their disposal. The overall conclusion here then, what does it really mean for oil markets? Well, I've been kind of scanning through some of the bank commentary, and I, I definitely kind of subscribe to the view that, look, is this important? Well, I mean, look, just look at the chart. Yes, intraday it's important. Look, we're moving lower as well here, around a dollar, as the early US participants start to come in. Will we retest $100 to the downside, the, the late Asia-Pac low. Sure, perhaps we might even break that, but what does this mean more longer term? Well, the potential release of the SPR could help the market rebalance this year, but it won't solve the structural deficit for oil. And that's what's really important is overall is where is this demand coming from, what is the supply dynamic given the complete lack of investment that we've had in areas like North America through the period of what has been tackling COVID and where demand was, was destroyed initially back in March 2020. That's going to take time for it to come back in. And so overall, that chronic lack of investment is going to lead to a lack of available supply. And depending on the demand dynamic, you know, will this help short term? Sure. Will it help more medium, long term? Questionable. So the other thing here, what could have a more sustained impact, of course, would be things like the rapid increase in interest rates, let's say, that happens in the US and elsewhere in Western developed world. Does that tilt the economy and the perception of that more rapidly back in toward recession territory? And does that start to see a pullback then of that kind of reopening trade that we were seeing on the back end of COVID And that in itself is not a resolved issue either, because if you remember, remember, um, China's COVID situation is pretty much as bad as it has been ever since the beginning. In fact, we had the manufacturing and service PMI data coming out in the overnight session, and both of those moved into a sub-50 contractionary number. That's the first time that that's happened for both readings since basically when COVID first hit China back in the beginning of Q1 of 2020. So yeah, some big news. For sure. A big move overnight. Questionable, though, over the long-term impact of this. But to make that more sense, Biden doesn't really care, I don't think, about the longer-term nature of that. He has a problem right now, and that is his poll rating is going down significantly and rapidly. People are blaming him because the economy is at the utmost of the most important issue for Joe public in America. Not what's happening so much in Ukraine. And COVID now has become distant because of the fact that case rates are so low in North America. So he has to do it now, and he has to start pivoting the optics off him in regards to surging energy, which is impacting inflation and the cost of living for the US citizens. So yeah, there's a lot of politics interwoven with this, this announcement. But yeah, big news nonetheless. And yeah, I'll catch you next time. Take care.