IEA Announces Global Coordinated SPR Release

IEA Announces Global Coordinated SPR Release

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IEA announced today that there will be a global coordinated SPR release of ~60 million bbls. The US will account for half of that at ~30 million bbls. The exact timeline has not been specified, but it usually takes 45 to 60 days to get everything in order. We expect the release to time right in front of the jump in summer driving.

The oil market’s reaction on the back of the IEA announcement was… interesting. So interesting in fact that Brent 1-2 timespreads hit another intraday high…

Brent 1-2 timespread

And as you can already tell from the reaction to the futures market, WTI hit $105 after and Brent surged to $107.

The market reaction really encapsulates what’s really going on in the underlying fundamentals. At first, we knew that the SPR release would be bearish as it dampens draws in commercial storage, but the real problem in the oil market today seems to be self-imposed sanctions from oil traders on Russian crude. WSJ came out with an article today highlighting that traders, banks, and tanker companies are avoiding Russian crude with a 10-foot pole. Not because there were sanctions imposed on Russian energy exports, but because they don’t want to be caught down the road on future potential sanctions.

While we knew that the SWIFT sanctions did magnify the intensity of the sanctions, we did not see the other traders reacting in this manner. This was a grave miscalculation on our end.

So putting the impact of Russian crude exports into context, the ~60 million bbl SPR release is so minuscule as to make oil traders laugh, and we’re seeing that in the market now. Russia exported 4.65 million b/d in February according to Kpler.

Russian crude exports


Roughly ~800k b/d of that is exported to China via tankers, so we know those volumes won’t be impacted. But this puts at risk the other 3.65 mb/d. We have no idea what’s going to happen to these exports. What we do know is that the Urals is being offered at a discount of $15/bbl vs. Brent, and no one is willing to take shipment. The WSJ article also highlighted that the buyers aren’t willing to send tankers up to take shipment of oil, and instead, Russia would have to send their own tankers, deliver the oil, and receive cash. If this is the case, increased friction costs will severely dampen Russian crude exports.

Again, this is pure speculation here, but judging by the available tankers at Russia’s disposal, we would argue that half of the ~3.65 million b/d of crude exports to elsewhere will be impacted. This will force Russia to send an extra ~1 million b/d to China. The next effect will be ~1.8 million b/d of crude exports will be impacted offset by ~1 million b/d of extra crude to China, or ~0.8 million b/d.

So putting into context the SPR release, this is just two months worth of Russian crude exports, which now makes sense considering that the market just completely laughed it off.

Another reason the SPR release won’t have much of an impact is that global supply-demand balances are showing a draw for Q1. This was the quarter all the energy agencies around the world expected a build.

Global crude inventories


With global inventories still declining and spare capacity running thin by this summer, the case for higher oil prices (from today) is getting stronger. Let’s see how oil demand holds up throughout the next few months, and if it’s anything like what we are seeing so far, buckle up.

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