The use of the strategic petroleum reserve (SPR) as a tool for market management - a key feature in 2022 - is likely to remain relevant in 2023, Trend reports with reference to Oxford Institute for Energy Studies (OIES).
OIES said in its latest report that this includes announced buybacks but also potential releases should the market tighten.
"US shale continues to attract focus with the emergence of private operators as a new force within the shale industry while growth from public operators remains constrained due to investor pressure and bottlenecks, with US crude production growth projected to reach 800,000 b/d year-on-year in 2023 from 600,000 b/d in 2022. This reflects a more fundamental shift in US policy towards using the SPR to influence market balances and expectations," the report says.
The Oxford Institute analysts note that geopolitical risks outside Russia in places like Libya also remain a wildcard, with a long-speculated return of Iranian production now completely off the table in 2023.
"Last year also saw a massive and structural transformation in crude oil and products trade flows with US, West African, and Middle Eastern crudes finding their way into the Mediterranean and Europe, while Russian Urals crude has been competing in Asia with Middle Eastern and West African crudes, as well as other sanctioned crudes from Iran and Venezuela," the report says.
In terms of products, OIES says Europe has increased its imports of non-Russian products attracting supplies from more distant places including the Middle East, India, China, and Brazil.
"In effect, the oil market in its various layers has been performing the key function of redirecting crude and products in the face of a massive shock, but as the trade routes have become longer, the adjustment in price differentials sharper, the tanker market more segmented, a new class of trading practices and entities is emerging. Refineries are having to change their crude slates resulting at times in sub-optimal use of crudes. These shifts in trade flows will accelerate and consolidate in 2023, with wide implications for the structure of the market, geopolitical relations, and the dominance of the dollar in oil trade."
The SPR was established in the 1970s to reduce the effects of unexpected oil supply reductions. The reserve was designed to hold up to 714 million barrels of crude oil across four storage sites along the Gulf of Mexico, where much of the US petroleum refining capacity is located. One of the SPR’s core missions is to hold enough oil stocks to fulfill US obligations under the International Energy Program, the 1974 treaty that established the International Energy Agency (IEA).
Amid the tight oil markets due to the cuts from Russia, the US Department of Energy (DOE) announced a notice of sale of as much as 15 million barrels of crude oil from the Strategic Petroleum Reserve on October 18, 2022, to help address the market supply disruption caused by Russia’s full-scale invasion of Ukraine and to help lower energy costs. The sale was held on October 19, 2022, for delivery in December 2022.