July 7, 2022

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White House uses oil reserve to place a giant spread trade: Kemp

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LONDON — U.S. President Joe Biden has promised to make an average of 1 million barrels per day of crude available from the Strategic Petroleum Reserve (SPR) for the next six months after consulting with other IEA members.

The unprecedented release of 180 million barrels is intended to ease concerns about supply and curb upward pressure on prices following Russia’s invasion of Ukraine and the imposition of sanctions in response.

The inventory release is meant “to serve as a bridge until the end of the year when domestic production ramps up,” according to a statement issued by the White House on Thursday.

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Sale revenues will be used to restock the SPR in future years, ensuring it remains available to respond to future emergencies (“President Biden’s plan to respond to Putin’s price hike at the pump”, White House, March 31).

The aim is to ease upward pressure on spot prices by increasing the amount of oil immediately available, while supporting long-dated futures contracts and encouraging more drilling by pledging to buy back the oil later.

In effect, the White House has committed itself to a giant 180 million barrel spread trade to relieve anxiety about a sudden reduction in oil exports from Russia as a result of the war or sanctions.

SHORTING THE SPREAD

In recent weeks, traders have been trying to “buy” the calendar spread, purchasing futures contracts with nearby delivery dates and (in some cases) selling contracts with longer to delivery.

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As a result, prices for near-dated futures have…

Reuters

2022-04-02 21:00:42

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