The release of oil from emergency reserves by Western governments should cap prices of Brent crude, BofA says. The investment bank had previously expected a mid-year price surge to $150 a barrel. Renewed COVID outbreaks in China should also temporarily keep global oil prices in check. Loading Something is loading.
The millions of barrels of oil the US and other governments are releasing into the global market should help keep oil prices in check this summer, Bank of America said Monday in trimming its outlook for a mid-year price spike.
The Biden administration in March said it would release 1 million barrels of oil every day for six months from the country’s Strategic Petroleum Reserve, an unprecedented amount as gas prices last month soared in the wake of Russia’s invasion of Ukraine. Members of the International Energy Agency also collectively agreed to release millions of barrels of petroleum from their emergency reserves.
The wave of unleashed oil should reduce the risk of a surge in Brent crude to spike to $150 barrel by mid-year, according to BofA, which adjusted its summer-peak price outlook to $120 a barrel.
“The release of strategic government oil stocks and the rolling Covid-19 lockdowns in China have altered the oil price trajectory we published in early March and brought oil prices lower,” Francisco Blanch, global head of commodities at Bank of America Global Research, said in a research note.
A coronavirus outbreak in China has prompted officials to lockdown activity in the city of Shanghai, China’s largest, and the manufacturing city of Guangzhou has shut down arrivals into the area. The renewed spread of the virus weighed on demand prospects from China, the world’s largest importer of oil, sending Brent and West Texas Intermediate crude sliding 4% during Monday’s session. Brent traded at just below $99 a barrel and WTI fell below $95 a barrel.
Brent in early March shot past $139 a barrel on concerns about reduced supply from major oil producer Russia as it launched its war against Ukraine, prompting sanctions by Western nations and a ban on imports by the US.
Oil demand may be been temporarily dented in the first quarter of 2022 as petroleum prices stepped higher, the investment bank said. Governments rushing to reduce taxes on energy, provide subsidies, and open up strategic reserves suggest any price-driven demand slump could be short-lived.
The effect of the release of oil from emergency reserves on oil prices over the next couple of years “should be a wash” however as global stockpiles will need to be replenished. OECD governments will likely become a source of additional oil demand in late 2023 and 2024.
Bank of America retained its projection for Brent oil to average $102 a barrel for 2022 and 2023.
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