Oil prices rose sharply in Asian trade on Friday, extending a strong sequence of gains after the US government announced its intention to start replenishing the country’s strategic oil reserves, while concerns over supply disruptions in the Middle East also provided support.
US Department of Energy Announces Purchase of 6 Million Barrels for Strategic Petroleum Reserve Replenishment
The Department of Energy (DOE) announced bids totaling 6 million barrels for delivery between December this year and January 2024, as the Biden administration sought to begin replenishing the country’s hard-pressed Strategic Petroleum Reserve.
The government has withdrawn around 200 million barrels from the strategic reserve since the start of 2022, bringing the reserve to its lowest level in almost 40 years, in an attempt to combat rising gasoline prices following the outbreak of war between Russia and Ukraine.
The Ministry of Energy said it would sign purchase contracts for replenishment at a price of $79 a barrel or less, and would also continue to place purchase orders for oil until at least May 2024.
This decision emboldened oil bulls, who had long opposed government releases of strategic oil reserves on the grounds that they were an attempt to control crude oil prices. Regular purchases of crude oil in the USA also point to a tightening of supplies, especially as recent inventory data have shown a continuing decline in oil reserves, while demand for fuel has remained stable.
Replenishment plans also come against a backdrop of persistent concerns that the war between Israel and Hamas could develop into a wider conflict in the Middle East, which could have serious consequences for crude oil supplies in this oil-rich region.
US Considers New Oil Sanctions on Iran as Oil Prices Rise Due to Middle East Tensions
The US government is reportedly considering new measures to impose oil sanctions on Iran, further restricting the Middle Eastern country’s crude oil exports.
Fears of an escalation of the war between Israel and Hamas have pushed oil prices significantly higher over the past two weeks, as traders brace for a tightening of markets following significant supply cuts by Saudi Arabia and Russia earlier this year.
Brent crude futures jumped 1% to their highest level in nearly three weeks at $93.58 a barrel, while West Texas Intermediate crude futures rose 1% to $89.66 a barrel.
Oil heads for a second week of gains
Brent and WTI futures are expected to rise between 1.7% and 2.5% over the week, marking the second consecutive week in positive territory.
The announcement of the replenishment of the Strategic Petroleum Reserve helped markets anticipate the easing of US sanctions on Venezuela’s oil sector after the Latin American country agreed to hold its first presidential elections in nearly six years.
Oil markets also received some support from a weaker dollar, after markets viewed recent comments by Federal Reserve Chairman Jerome Powell as somewhat hawkish. Powell is still leaving the door open to at least one more rate hike but has said that the recent rise in bond yields has contributed significantly to tighter financial conditions.
He also said that the US economy remained resilient, suggesting that the country’s fuel consumption would remain strong.
