Summarising Biden’s toolbox

Crude prices remained stable, hovering around 83.5 $/b for the January ICE Brent contract. Expectations of a response from the US administration raised uncertainty in the crude oil market, as Biden’s toolbox for limiting the current price rally could be disruptive for sections of the market. If Biden decided to release stocks from the SPR – without an identified supply disruption, which would be a first – it could be in the order of 30 mb of sour crude supply. The market’s likely response would be a rapid reduction in Dubai time spreads but sustained long-dated futures prices, as Biden’s measure would adjust the stock and not the flows of crude oil. A more disruptive measure would be to tackle OPEC’s market power through a NOPEC antitrust effort, with a set of economic sanctions and consequences for countries affiliated with the OPEC organization. The consequences of such a structural change would be hard to anticipate. The reinstatement of the crude export ban would be a highly disruptive event for crude markets too, with significant downside risk for US light sweet crude, without a clear demand centre, as US refiners are the most efficient players at refining sour heavy crude and get rewarded for it. Finally, pro-oil domestic economic policies would raise the long-term US crude supplies, which would first materialize in long-dated prices and have little effect on prompt prices.