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US plan to tap into its oil reserve to have minimum impact

Oil to trade higher due to supply disruptions

Gulf News

Abu Dhabi: The plans of the US administration to tap into its Strategic Petroleum Reserve to prevent further rises in oil prices is expected to have a minimal impact on oil markets amid a host of supply disruptions, as well as rising demand in certain emerging markets, according to analysts.

The Strategic Petroleum Reserve (SPR) is an emergency oil stockpile of the US which stands at 660 million barrels.

“If the US views that the increase in Opec and its allies production, notably from Saudi Arabia is not having a material reduction in oil prices, then there is a high probability that some size and magnitude of SPR release will be announced in the near term,” Ehsan Khoman, Head of Mena Research and Strategist at MUFG, told Gulf News.

“However, given the scale and timing of the SPR release that is currently being discussed, we view this oil sale as having only a minimal market impact as the US cannot materially stabilise the global oil market with the SPR.”

Oil prices have been rising in recent weeks due to supply disruptions across the globe and rise in tensions in the Middle East especially after the decision of the US President Donald Trump to reimpose sanctions on Iran, which is expected to remove thousands of barrels from the market leading to a supply crunch.

Iran also has threatened to shut down the Strait of Hormuz, one of the busiest shipping routes for oil, if the US administration goes ahead with sanctions in November.

Brent, the global benchmark, was trading at $75.33 (Dh276.46) per barrel, up by 1.18 per cent when markets closed on Friday while US crude West Texas Intermediate was at $71.01 per barrel, up by 0.97 per cent.

Trump, Putin meeting

US president Trump and Russian President Vladimir Putin are set to meet in Helsinki on Monday and investors will be keenly watching the developments as oil prices are likely to be discussed during the meeting.

Russia is currently cooperating with Saudi Arabia and other Opec member countries on controlling oil production to stabilise prices. They recently struck a deal in Vienna to raise production to about one million barrels per day to help lower oil prices due to concerns expressed by some of the big oil consuming countries like the US, India and China.

“The alliance between Saudi Arabia, US and Russia is increasingly likely to be one of the crucial factors driving oil supplies and prices, and markets should continue to expect coordinated market management to remain a fixture for the foreseeable future,” added Khoman.

Bullish outlook

Benjamin Lu, commodity analyst from Phillip Futures in Singapore predicts higher oil prices in 2018.

“Though global demand might be expected to soften slightly on higher prices and tighter monetary policies, supply risks remain the subject focus.”

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