Florence Tan

SINGAPORE, (Reuters) – A coordinated release of oil resources by the United States could add 70 to 80 millions barrels of crude oil supply. This is less than what the market was pricing in at more than 100 million barrels, according analysts at Goldman Sachs.

According to the bank’s pricing model, such an release would not be worth more than $2/bbl and significantly less than what occurred in October at $8/bbl,” it stated in a Nov. 23 note entitled “A drop in ocean”.

The global oil price rebounded on Tuesday to a 1-week high after the United States’ and other nations’ move to remove oil from their strategic petroleum reserves (SPR), to attempt to cool down the market was short of expectations.

U.S. West Texas Intermediate crude fell by 35 cents on Wednesday to $78.15 per bar at 0031 GMT.

Goldman explained that “the aggregate release of approximately 70-80mb [million barrels] was smaller than what 100+ mb had been priced in. With the swap nature most barrels, it implies an even smaller increase of oil supplies, around 40 million barrels net,” Goldman added.

“This is within the context of a current market that draws up to 2mb/d.”

Goldman stated that prices also accounted for a 1.5 million-barrel per day increase in global oil consumption due to COVID-19’s impact on Europe and China.

According to the bank, “We consider these excessive concerns for the next three-months,” adding that the sell-off was overshooting the fundamentals of trading activity due to year-end declines in trading activity.

While coordinated government stock releases could warrant a downgrade of $2 per barrel to the bank’s year-end Brent price prediction, the bank believes that the absence of progress with Iran will offset the risk.

On Monday, the global powers and Iran meet to reopen talks about a possible nuclear agreement that would lift U.S. oil sanctions. This will allow Tehran to boost its exports.

According to the bank, “OPEC may also reconsider halting production rises in order to reduce the adverse SPR effects of lower crude oil prices on global oil recovery. Such action would be considered prudent considering COVID demand threats.”