The oil market has already priced in the concerted release of crude oil from national reserves, Goldman Sachs has said, adding that the U.S. was expected to release between 20 and 30 million barrels, with the rest of the group likely releasing a combined 30 million barrels.
The United States talked to China, India, Japan, and South Korea about a joint release from strategic reserves in a bid to rein in crude prices and send a strong-worded message to OPEC. However, India and Japan have refused to release any crude from their strategic reserves. South Korea, according to a Reuters report, is also reluctant to tap its strategic reserve.
"Japan and South Korea have shown resistance to releasing reserves, so we're coming back up a little bit," Phil Flynn, a Price Futures Group analyst, told Reuters. "The market is going to continue to be nervous, because it is on guard from a release."
China, meanwhile, is preparing its second release of oil from the strategic reserve this year, but it has remained unclear whether the move was planned earlier or came in response to President Biden's effort to rally large consumers around its reserve release idea.
"Such a release would only provide a short-term fix to a structural deficit," Goldman analysts including Damien Courvalin and Callum Bruce said in a note cited by Bloomberg. "In fact, if such a release is confirmed and manages to keep oil prices depressed in the context of low trading activity into year-end, it would create clear upside to our 2022 price forecast."
Goldman Sachs has forecast Brent will average $85 per barrel during the final quarter of the year and $81.30 per barrel in 2022. Since its peak in October, the international benchmark has shed some 5 percent.
The investment bank is not the only one questioning the effect of a reserve release as a tool for lowering oil prices. The consensus among experts appears to be that a couldn't possibly be enough barrels to bring about a lasting decline in oil prices, which makes such a move pretty pointless.
By Charles Kennedy for Oilprice.com
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Even a release of 100 million barrels could only initially lead to a price reduction of up to $2.0 a barrel. However, prices will certainly rebound much higher than the pre-release levels. Such an exercise isn’t dissimilar to a Central Bank trying to arrest a loss of value of a certain currency but it ends up wasting the bulk of its hard currencies and still failing to achieve its objective.
It is far more efficient to let the market decide on prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London