WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange moved mixed early Tuesday following the announcement the Biden administration would release 50 million barrels (bbl) of crude oil from the U.S. Strategic Petroleum Reserves, with Japan, China and India expected to also release reserves despite an outlook for the global oil market to shift towards oversupply as early as the first quarter next year.
"Everybody is predicting a surplus starting from the first or second quarter," Russian Deputy Energy Minister Pavel Sorokin told Bloomberg on the sidelines of this week's oil industry even in Abu Dhabi. "The only question is when exactly that surplus will take place -- but the difference is only a few months."
Production growth in the United States, Russia, and Organization of the Petroleum Exporting Countries early next year will ultimately outpace global oil demand growth, according to all major foresting agencies -- a trend likely to accelerate in the face of renewed COVID lockdowns in Europe. International Energy Agency in its November Oil Market Report released last week said industry stocks held by developed countries registered their first build in months in October, signaling production is catching up with demand.
Against this backdrop, Biden Administration in coordination with the government of other oil consuming countries Tuesday morning announced the release of crude oil from the SPR to relieve short-term upside price pressure. Analysts point out that multilateral stock release would only ease the immediate shortfall on the global market and would not address longer-term supply-demand imbalances.
As of Nov. 12, the U.S. SPR held 609.4 million bbl of crude in underground caverns in Louisiana and Texas, with the Congressional intent of the reserve for use in emergency situations such as natural disasters, not to control oil prices. Regardless of the strategy, the Biden administration has been under political pressure to lower gasoline prices at the pump as millions of Americans are now hitting the road for this week's Thanksgiving holidays.
Fuel demand shows no signs of slowing heading into the holiday season, with over 53 million Americans projected to drive this week alone. Transportation Security Administration reported on Monday passenger throughput at U.S. airports topped two million for the fifth consecutive day -- the highest level of activity since the start of the pandemic and about 12% below the comparable period in 2019. Air travel is expected to be up 80% from last Thanksgiving. Demand for jet fuel in the United States has recovered nearly 70% from the pandemic-caused contraction, according to the Energy Information Administration.
The biggest downside risk to the oil complex is beefed-up quarantine restrictions in the European Union and Russia, with government in Germany, Austria and Russia warning more shutdowns are needed to slow the viral spread. Riots, noncompliance, and social disorder broke out across the continent this week.
German Health Minister Jens Spahn said Monday, "By the end of this winter, everyone in Germany will be either vaccinated, cured or dead. That sounds cynical, but that is the reality."
The stark warning came on the same day neighboring Austria and Netherlands enacted a fourth round of mandatory lockdowns, shutting all nonessential businesses and prohibiting people from leaving their homes except for an emergency.
The World Health Organization estimates coronavirus deaths in Europe jumped 5% last week, making it the only region in the world where COVID-19 deaths increased. The fourth wave of COVID-19 injections will likely erase a chunk of Europe's fuel demand heading into the end of the year, with traffic congestion in large European cities already seen on the decline in recent days.
In early trade, NYMEX West Texas Intermediate futures for January delivery declined $0.50 to near $76.25 bbl, and international benchmark ICE January Brent was slightly lower near $79.60 bbl. NYMEX RBOB December futures fell 1.25 cents to near $2.2475 gallon and front-month NYMEX ULSD eased 0.4 cents to $2.3215 gallon.
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