“We will definitely see some price reduction on gasoline at the pump,” Tom Kloza, president of the Oil Price Information Service, told CNN on Friday, adding that the relief will be “feather-like as opposed to dive.”
“It looks like now that the 2021 peaks have been established,” Kloza said.
The shutdown raises fears in the oil market of harsh new health restrictions elsewhere that will slow the economic comeback and erode energy demand.
“Demand signals today are overwhelmingly bearish,” Louise Dickson, senior oil market analyst at Rystad Energy, wrote in a note Friday. “The risk is real in Europe, especially if Austria’s transition to lockdown has a domino effect across the continent. If Germany follows suit, price levels below $ 80 may have come to stay.”
Will China and America merge?
A coordinated release from two of the world’s largest energy consumers would have a greater impact than if the Biden administration acted alone to exploit the strategic oil reserve.
Officials in China on Friday issued a statement suggesting that a release of barrels from the country’s emergency reserve is on the table.
“The agency is pushing ahead with crude oil-related work at the moment,” authorities monitoring China’s strategic oil reserves said in a statement to CNN.
According to a reading published by the White House, US President Joe Biden and Chinese President Xi Jinping discussed during their virtual summit this week “the importance of taking action to manage global energy supplies.”
A coordinated release from the US and China could also be used as a negotiating tool to get OPEC + to open up to the taps, after months of refusing to do so.
“There is firepower with a joint effort,” said Robert Yawger, director of energy futures at Mizuho Securities.
Still, this is not a long-term solution, as releasing barrels from emergency reserves does not address the underlying supply-demand mismatch. And these emergency reserves contain a limited amount of oil – crude oil, which is typically reserved for supply shock, not rising demand in the midst of an economic recovery.
The release of barrels today leaves reserves with less buffer for the next crisis, whether it is a hurricane, a conflict in the Middle East or another supply shock.
Goldman Sachs reiterated in a new report to customers on Thursday that a coordinated release “would only provide a short-term solution to a structural deficit.”
The Wall Street Bank claimed that this coordinated release is now “fully priced”, meaning that the impact on the markets has already taken place.
“Indeed, if such a release is confirmed and manages to keep oil prices down in the context of low trading activity by the end of the year, it would create clear upside risks to our 2022 price forecast,” Goldman Sachs strategists wrote.
In other words, at least some on Wall Street are already looking past this emergency intervention – before it even happens – and predicting higher prices ahead.