Oil Futures for 2023 Gain With Trafigura Seeing U.S. Release as Misstep

(Bloomberg) -- Not all oil prices slumped after the U.S. announced a giant release from its strategic reserves on Thursday -- in fact some were rallying.

West Texas Intermediate was down about 3.5% by 11:48 a.m. in New York but futures for December 2023 and beyond were up by more than $1.

The move came after the Biden Administration's decision to tap 1 million barrels a day of emergency oil stockpiles for the next six months. While the boost to supply in the short term weighs on near-term prices, it also does little to encourage production to come online further down the road -- therefore boosting the the value of crude futures along the curve.

“Prices at the front have obviously fallen but those at the back have actually started to come up on the basis of this news,” Trafigura Group chief economist Saad Rahim said in a Bloomberg TV interview, in reference to the SPR release. “You're sending a signal to producers that by releasing the oil we're bringing prices down and that's going to disincentivize that investment that we need.”

Releasing oil from the strategic reserve now would achieve the opposite of what the market needs, he said.

The decision by the U.S. to tap its strategic reserves came after crude prices have surged above $100 a barrel since Russia's invasion of Ukraine, fanning already-rampant inflation. Many oil analysts have argued that the market needs to enter a period of demand destruction as consumption is currently outpacing supply.

Given the size of the reserve release, there's also a chance that the U.S. may be running out of room to tap its stockpiles further, RBC Capital Markets including Michael Tran and Helima Croft wrote in a report.

“In other words, market bulls can buy into this market knowing that there are no further SPR releases on the table,” they said, adding that the U.S. may also have to buy back some of the oil it has sold, also boosting prices further out on the curve.