See also: Gas-to-Oil Switching: A Trend to Shape Winter Crude Prices
“If Russian gas export will, in fact, be increased the additional oil demand created by the gas-to-oil switch will evaporate and under this scenario the highest price of 2021 might have been achieved yesterday,” said Tamas Varga an analyst at PVM Oil Associates. “But this is a big if.”
Russian Deputy Energy Minister Pavel Sorokin said on Thursday that OPEC+ shouldn’t allow the oil market to overheat, or it would destroy demand. The group, which includes Russia, this week agreed to continue with its plan to raise supply gradually, ignoring some calls to boost output faster to help calm prices. The oil market is balanced at a price of $45 to $60 a barrel, Sorokin said.
U.S. crude was near the biggest discount to the global Brent benchmark in 17 months earlier on Thursday, after a report that the government was considering unleashing its emergency oil reserves. The nation could release up to 60 million barrels from its strategic reserve if the plan is implemented, but that would only provide “modest and transient” relief to prices, according to Goldman Sachs Group Inc.
Crude has increased about 20% since mid-August following a spurt of consumption as countries emerge from the worst of the pandemic. The energy crunch from Europe to Asia also raised the prospect of a greater demand for oil ahead of winter. These had driven prices into overbought territory earlier this week, putting a pullback on the cards.
The comments from Energy Secretary Jennifer Granholm on a potential U.S. stock release were about sending a message to OPEC+ to add more supply, said RBC Capital Markets analysts including Helima Croft. However there are limits to using the SPR to cool gasoline prices, they said, with higher crude supply not necessarily equating to more refined products.
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