A major event that oil traders are waiting for this year

How can the US lower the price of oil?

As a consequence, oil prices rose to their highest levels since November 2022. Be that as it may, the inflated oil prices have fallen slightly, in recent days, due to concerns regarding the possible impending recession.

As previously mentioned, the increase in oil prices could indirectly lead to a recession and subsequent decline, creating a self-sustaining market. However, the US is determined to avoid a recession and bring oil prices below USD 70 per barrel. One way to achieve this is by following their previous strategy of releasing the US strategic petroleum reserves onto the market.

However, there is one problem - the US oil reserves are at their lowest level for 40 years and the US is certainly not rushing to change that. Such a signal would be clearly bullish for oil prices, and that is something the US definitely wants to avoid. Sooner or later, however, they must buy oil. You can see the state of the strategic reserves below. A significant decline during 2022 is evident.
 

_{Strategické ropné rezervy v USA, v milionech barelů. Zdroj: Ycharts}

What effect has the releasing of the oil reserves had on the price of oil in the past?

In 2022, the US released 180 million barrels from its oil reserves in response to the energy crisis following Russia's incursion into Ukraine. This was announced by Joe Biden at the end of March and within days we saw a huge drop in oil prices. The trend from a year ago is shown in the chart below. A barrel of WTI oil then went from around USD 110 to less than USD 94 in less than two weeks. The US was thus gradually releasing around 1 million barrels of oil per day onto the market, equivalent to around 1% of global demand. By the end of the year, WTI oil prices had even managed to fall to almost USD 70 per barrel.

Reports suggest that the key threshold for the US to buy oil for its reserves again is when WTI oil prices reach USD 70 per barrel. During the crisis of small and medium banks in March 2023, the price of a barrel of WTI dropped below this threshold, allowing the US reserves to start filling up again. However, this does not mean that the US oil reserves will be replenished anytime soon, as only around 25 million barrels are expected to be returned from producers over the next two years. This is not a significant increase, especially considering the anticipated further releases of US crude from government reserves in the market.

When should we expect the next oil reserve release?

The announcement on 13 February 2023 that Congress had approved the release of an additional 26 million barrels of oil into the market from the national reserves was quite surprising. This oil should find its way to the market between April and the end of June. And indeed it has - since the end of March 2023, the Americans have delivered another 4 million barrels of oil to the market.

It is in the second half of the year, however, that the market expects to see a more significant increase in oil demand, driven in particular by China, whose economy is like being doused with living water. Current OPEC+ production cuts are around 3.66 million barrels per day, or almost 4% of global demand. Oil prices could rise significantly again, and nobody but OPEC+ wants that.

It is therefore likely that the US will release additional barrels of oil from its reserves during the summer, and possibly in significantly higher volumes than announced in February. The whole market is waiting for this announcement and it has the potential to literally shake oil prices as it has done in the past.

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