Wednesday’s announcement on the co-ordinated use of strategic oil stocks for non-emergency purposes muddied the water on the oil front and this mud has not settled yet. It might take some days and weeks until the true impact of this unusual and seemingly desperate step becomes obvious. The initial reaction was a massive rally, not only in outright prices but in the Brent structure, as well. Investment bank Goldman Sachs estimates that the deal, in its current form, is worth about $2/bbl on the downside, much less than the price decline from the highs in October. Others would argue that the price jump is similar to the inverse Gulf War I syndrome. Oil prices had retreated in anticipation of the SPR deal and when perception turned into reality it was time to cover short positions. Some calmness returned to the market yesterday, but the move by the six consuming nations will surely result in aftershocks as the fault lines between OPEC+ and major consuming countries become ever more visible. Below is what has been announced (or not announced in case of China) about the SPR release, so far:

US: The world’s biggest oil consumer declared the withdrawal of 50 million bbls from strategic stocks. Out of the total, 32 million bbls will come in the form of an exchange that will need to be returned to the SPR in 2022, 2023 and 2024, according to the Department of Energy. The DOE also announced last night that the release of this batch will take place January through April 2022. The balance of 18 million bbls is a sale that had been planned earlier and is authorized by the Congress, only the release date has been brought forward to the beginning of next year. In essence, therefore, the United States will make 32 million bbls of crude oil temporarily available in the open market.

UK: A government spokesperson said in an emailed statement on Wednesday that privately held oil stocks can be released on a voluntary basis. The volume is the equivalent of maximum 1.5 million bbls and would not impact UK oil reserves. The UK’s move is clearly just a PR gesture towards the US and nothing more.

China: The biggest crude oil importer in the world has not announced the amount of crude oil it would release; it would not even confirm its intention to do so. If the country does participate, it is not clear whether the earlier release of 7.38 million bbls would be part of the deal.

India: The Ministry of Petroleum & Natural Gas said that it will release 5 million bbls of crude oil from its SPR. It will take place in consultation with other participating countries and although no time frame was given it is likely to be at the beginning of next year. It is worth recalling that India’s SPRs were completely filled up last year, shortly after the price crash.

Japan: The country’s prime minister, Fumio Kishida said that a portion of its national stockpile will be made available, consistent with the agreement with the US and in line with the Japanese stockpiling law. The Nikkei newspaper reported yesterday that the release will amount up to 4.2 million bbls.

South Korea: The Ministry of Trade, Industry and Energy did not announce details of the SPR release. A senior official said that the decision will be taken after consulting with the US. The source told S&P Global Platts that the release could be as much as 4% of the total SPR, which is around 3.8 million bbls.

Total volume, excluding China, amounts to 45 million bbls. It appears that these barrels will start appearing in the market some time at the beginning of next year. The balance of this year would remain undersupplied and tight. This would explain Tuesday’s price rally. Based on what the DOE implied the release that would be spread over the first four month of next year adding around 375,000 bpd extra supply at a time when global oil demand is seasonally low. This additional volume could be neutralized by the OPEC+ alliance that is scheduled to put 400,000 bpd of oil to the market each month adding up to 1 mbpd over the first four months of 2022 on average. Its reaction to the SPR deal from the producer group will shed further light on how the global oil balance might change. OPEC members will discuss the latest developments on December 1 and their non-OPEC peers will join the talks a day later. Although the initial price reaction was a rally, we believe that if the producer group does not reconsider its schedule and does not readjust its output level downward the current supply deficit will turn into a bigger-than-expected surplus at the beginning of 2022, temporarily halting the price move higher.

Those who expect a tight finish to the year were vindicated by the latest EIA report on US oil inventories. Demand, indeed, looks healthy and consequently oil inventories are depleting. This is true, even though crude oil stocks built by 1 million bbls due to a sizeable drop in exports and a slight increase in domestic output. Gasoline stocks fell a bit and distillate inventories sank 2 million bbls – after all, winter is approaching. Total commercial inventories dived 6 million bbls on the week taking the deficit to the 5-year average to 52 million bbls or 4.1%. The same trend is expected to be observed in OECD stock levels. Products supplied, a proxy for oil demand, is holding convincingly above 21 mbpd. Gasoline and distillate demand is solid (9.3 mbpd and 4.4 mbpd) and the good news is that jet fuel consumption, albeit erratic on a weekly basis is now above 1.5 mbpd, only 270,000 bpd below the 2019 average. The beginning of next year could see global oil supply exceeding demand but the current one will end with historically low oil inventories.