(Finance and Economics) Has the international oil price dropped significantly and the supply shortage problem solved?
China News Agency, Beijing, April 12 (Liu Wenwen) Affected by the situation in Russia and Ukraine, the international oil price has finally ushered in a fall after a long period of high operation.
The decline accelerated on Monday, with Brent oil falling below the $100 a barrel mark for the first time since March 15.
As the Russian-Ukrainian conflict continues, European countries are accelerating their efforts to get rid of their dependence on Russian energy, causing a great impact on the global energy supply market.
In order to alleviate supply-side concerns, many countries released strategic oil reserves, which directly led to the cooling of oil prices.
The United States announced that it will release 1 million barrels per day of strategic oil reserves in the next six months, for a total of 180 million barrels of oil.
The International Energy Agency (IEA) said its member countries had agreed to release 120 million barrels of oil reserves, with the United States contributing half.
South Korea announced it would release an additional 7.23 million barrels of crude from its strategic petroleum reserve in a bid to quell energy prices soaring due to the conflict between Russia and Ukraine, the largest release so far under such an international move.
The release of large-scale strategic oil reserves has put pressure on crude oil prices that have continued to rise. Does this indicate that the problem of energy supply shortages has been resolved and oil prices will return to rationality?
Many experts have analyzed that the release of reserves will indeed help oil prices fall in the short term, but it may be unsustainable to rely only on this measure to stabilize oil prices.
Song Tao, an analyst at the Shenwan Hongyuan Research Institute, pointed out that the joint release commitment of the IEA and the United States is expected to contribute a total of 240 million barrels of oil reserves from May to October this year, equivalent to about 1.33 million barrels per day.
According to data from the Russian Energy Ministry, Russia’s crude oil production in the first week of April was 10.52 million barrels per day, down 4.5% from the average output in March.
Song Tao said that in the short term, the U.S. and the IEA will successfully release 1.33 million barrels per day of oil reserves in the next six months, which can alleviate the Russian crude oil supply gap to a certain extent; The progress of nuclear negotiations is lower than expected, and the gap between crude oil supply and demand will continue to expand with the economic recovery.
A report from Goldman Sachs suggested that releasing reserves would help the market rebalance this year, but would not address the "structural deficit" in oil.
Freeing up reserves will mitigate the demand destruction that prices are bound to cause, but it is not a source of sustained supply for years to come.
Given that Russian crude oil has been "pushed out" of the market by Western countries led by the United States, it is basically difficult to find such a large-scale replacement in the medium term.
In addition, when the large-scale release of oil reserves caused the international oil price to fall too quickly, the willingness of major oil producers in the world to increase production was undoubtedly hit, which did not help to truly solve the supply problem in the crude oil market.
It is worth noting that although oil prices have cooled significantly recently, the low strategic oil reserves have also caused many concerns.
U.S. crude oil reserves currently hold just 568.3 million barrels of crude, the lowest level since May 2002, IEA data showed.
If all 180 million barrels of crude are released, the U.S. Strategic Petroleum Reserve will fall to its lowest level since 1984.
"The oil market has been undersupplied since the third quarter of 2020, and inventories have fallen to extremely low levels. The global oil market is now ill-equipped to deal with major supply disruptions, whether because of sanctions or other unexpected disruptions." Peter McNally, global head of energy, said.
Peter McNally said that over the past two years, we have seen OECD crude oil and fuel inventories fall from record highs to staggering lows.
The peak of summer seasonal demand is approaching, and oil prices are expected to remain volatile given the current low crude oil inventory levels across the European supply chain.
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