President Biden ordering the release of 1 million barrels of oil per day from the Strategic Petroleum Reserve (SPR) to cool elevated prices will have a limited effect, according to Goldman Sachs.
"Conceptually, such a release would help the oil market rebalancing in 2022, increasing supply by 1 millions barrels per day for six months, for example," Goldman Sachs energy strategist Damien Courvalin wrote in a note prior to Thursday's announcement. "This would reduce the amount of necessary price-induced demand destruction, the sole oil rebalancing mechanism currently available in a world devoid of inventory buffers and supply elasticity. This would remain, however, a release of oil inventories, not a persistent source of supply for coming years. Such a release would therefore not resolve the structural supply deficit, years in the making. On net, such adjustments would lower our 2H22 Brent forecast by $15/bbl to $120/bbl, still above market forwards."
Oil prices have come off their highs of around $140 a barrel seen at the start of the Russia-Ukraine war, but remain uncomfortably high. Brent crude oil fell about 4% in early trading to below $100 a barrel on the news.
Elevated oil prices have pushed up the pain at the pump for U.S. households (and pushed down the president's approval ratings, as Yahoo Finance's Rick Newman reports).
The average national price for gasoline is $4.23, says GasBuddy, up more than 60 cents from a month ago and $1.38 higher than one year earlier.
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Consumers have taken notice with their daily budgets under attack, in part by cutting trips to retail stores.
The University of Michigan consumer confidence measure for March reached a new low for the year. Personal finances were seen worsening by the largest proportion of survey respondents since the mid-1940s.
Now the energy backdrop has Wall Street pros warning of a period of economic stagnation.
“I don't think 7% inflation or more, which we have now, is really our future. A lot of things will reverse like housing prices, oil prices, and used car prices. I think we're looking at 4% to 5% inflation for the next several years. So that's stagflation. But it's not a stagflation of the early 80s," said Pimco founder Bill Gross in an interview for Yahoo Finance Presents.
This post was updated with details of Biden's announcement.