Assessment: After we drain the SPR dry, the US will have to defend itself on windmill power. Our government in action …
The Biden administration confirmed a record large Strategic Petroleum Reserve release of 180 mb over the next six months to fight the “Putin price hike at the pump”, with the potential for other countries to release 30 to 50 mb.
As noted earlier, while such a release will help trim prices in the short-term, increasing supply and commensurately reducing the amount of necessary price-induced demand destruction – the sole oil rebalancing mechanism currently available in a world devoid of inventory buffers and supply elasticity – it will lead to higher prices over the longer-term as the government’s panicked, political intervention in the energy market which is obviously meant to avoid a Democrat wipeout in the midterms will discourage any rational investing in supply by US majors.
Furthermore, a release of inventories is, only a temporary source of supply and in fact, as Goldman notes, lower prices in 2022 support oil demand while slowing the acceleration in shale production, leaving for now a deficit in 2023 with an eventual need to refill the SPR.
“He taketh away the heart of the chief of the people of the earth, and causeth them to wander in a wilderness where there is no way.” Job 12:24 KJV
This leads Goldman to cut its 2H22 Brent price forecast from $135 to $125/bbl while also raising the 2023 Brent forecast from $110 to $115/bbl. In particular, the bank says it doesn’t see “today’s decision as resolving oil’s structural deficit, now years in the making.” This is consistent with the resilience in long-dated prices today, with Dec-23 Brent remaining the bank’s preferred long-term bullish oil trade (with EU Gasoil cracks the preferred short-term oil trade).