Post by
geezer21 on Jan 23, 2023 8:55pm
Brent Oil Price Rising As SPR Wound Down
Draining the Strategic Petroleum Reserve (SPR) was akin to borrowing shares to short a stock market. Borrowing oil from the SPR to short the oil market (i.e.: sell oil into the oil market) means having to buy the oil back to return it to storage. Where selling oil into the market atificially depressed the price oil buying it back will increase demand on the market and raise the price of oil.
Stopping the selling of SPR oil into the oil market is no longer masking the a supply deficit that has existed since late 2020. With the supply deficit no longer masked the rise in the price of oil has resumed its climb. Macro signs make it clear the supply deicit is getting worse.
Since B hitting a recent low of $76.60/barrel on December 9 the price of has rebounded to $81.66 as of this writing.
To replace the oil, the administration is attempting to secure long term contracts for approximately $70/bbl. However, that is unlikely to happen in a supply deficit oil market. Producers are all going to negotiate to get a hefty premium on a futures oil supply agreement when they see rising prices well into the future.
It is unlikely the administration will be able to secure contracts to refill the SPR at their low oil price bid. If contract do get executed it will be at much higher prices and the demand for oil it will place on the oil market will cause spot prices for oil to rise sharply.
Regardless wether or not the administration buys the oil back the price of oil will continue to rise with a supply deficit that keeps getting worse with no near term end sight.