March 16, 2020 / 7:32 AM / 25 days ago

U.S. purchases for SPR may not keep oil from sub-$30 prices -Goldman

March 16 (Reuters) - Goldman Sachs said the U.S. move to fill its national oil reserves might not be enough to stop prices falling below the bank’s second- and third-quarter Brent forecasts of $30 a barrel given the scale of the current global supply surplus.

In the first such move by a U.S. President since after the Sept 11, 2001, attacks, Donald Trump on Friday said the country would take advantage of low oil prices and fill the nation’s Strategic Petroleum Reserve (SPR), to help producers hit by a 50% slump in oil prices since January.

The peak rate at which the strategic reserves could be injected, about 500,000 barrels per day (bpd), is short of the current global oil surplus of 6 million bpd, the Wall Street bank said in a note dated March 15.

The SPR’s addition of 0.8% to global storage capacity was “simply too small if we are right in our view that low-cost producers have started a rational recapture of lost market share,” Goldman said.

The SPR has the capacity to store up to an additional 77 million barrels of oil, a Department of Energy official said, with out giving any details on how fast the oil would be purchased. The SPR is currently holding 635 million barrels.

“These purchases would help offset the decline in U.S. exports set to occur as core-OPEC and Russia ramp-up competing discounted seaborne crude supplies,” the bank said.

“On our quantitative pricing model, such an inventory absorption would be worth +$2/bbl to pre-intervention oil prices,” it said.

The move could also support West Texas Intermediate (WTI) prices, helping to push the crude benchmarks further back towards parity, the bank said.

Brent crude slid 25% last week, on prospects of supplies mounting as a price war heated up between top producers Saudi Arabia and Russia, with global demand weakening because of the spread of the coronavirus in Europe and North America.

Brent’s premium over WTI WTCLc1-LCOc1 is now near its lowest since 2016. (Reporting by Arpan Varghese in Bengaluru; Editing by Tom Hogue)

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