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Oil Prices Fall On SPR Announcement: What Does This Mean Going Forward?

Apr. 04, 2022 6:06 PM ETDBE, RJN, JJE, JJETF, USO, DBO, USL, BNO, OIL, OILK, USOI, OLOXF, OILX114 Comments


  • The U.S. announced a record-breaking SPR release of 180 million bbls.
  • Assuming that the SPR hits between May 6 to Oct. 14, US commercial crude storage will build during the summer months.
  • US crude storage with SPR is set to fall below ~800 million bbls as the unprecedented SPR release goes straight into an oil market deficit.
  • Oil price volatility will remain high. Depending on exactly how much crude exports Russia loses, this SPR release could be very meaningful or very meaningless.
  • Stay long energy equities. They remain undervalued relative to where oil is today even following the SPR announcement.
  • Looking for a helping hand in the market? Members of HFI Research get exclusive ideas and guidance to navigate any climate. Learn More »
Petroleum, petrodollar and crude oil concept : Pump jack and a black barrel on US USD dollar notes, depicts the money received or earned from sales after investment in the development of oil industry.

William_Potter/iStock via Getty Images

When in doubt, follow the numbers. As any good analyst will tell you, the headline is always scary until you actually do the underlying analysis. In the case of the SPR announcement, ~1 million b/d for 180 days sounds like a heck of a lot

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This article was written by

HFIR profile picture
HFI Research is focused on investment ideas within the energy sector. The goal is to find contrarian opportunities in the oil and natural gas markets. Members of the investing group Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SU, BTEGF, CVE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (114)

shaner1 profile picture
I'll wager Russia's oil Infrastructure is little better then its 3rd rate Military complex. They'll lose production over time and it won't come back.
I'll also bet the US can not sustain Million b/d from SPR.
its all about Summer Demand.
@HFIR What do you make of energy services companies (e.g., XES, OIH). In general, oil services companies start to boom only after energy producers start to do well... which feels to be now. There are a lot of energy services companies that appear to remain dirt cheap, most notably when compared to energy producers. Thoughts on this segment?
Im worried we are already in the 8th inning of XLE/energy equities......seems like we may be headed down.
thurston profile picture
I agree with this article. The release of oil appears to be designed to make sure that gas prices are lower, or not so high, on election day. Especially since the administration does not seem to be doing anything else in terms of energy policy. I think the author is right in that the release may moderate prices this year (although I do not think by all that much) and as a result it will support prices in 2023-24. In effect, the market for crude oil is so big that politicians can't successfully manipulate it.
Long Time Running profile picture
@thurston , Russia's invasion of Ukraine has created a world wide energy crisis.

Natural gas, normally used for refining crude oil into gasoline is being exported at a higher price, driving up the costs of refining adding to cost of gasoline.

There is a truck driver shortage in the energy sector because most of them were laid off with the collapse of shale in 2014 and again in 2020 when energy completely collapsed.

Shale drillers cannot get frac sand, water, drilling pipe to their work sites because of these shortages.

The price of diesel has never been higher because of processing and exports to the EU.

So, overall energy extraction, processing, transportation is all facing inflation.

It is all Biden's fault apparently.

Personally, I am profiting from the situation, can't have it both ways cheap gas means your energy investment will head south in a hurry. The only way to hedge high gas prices right now is to own the producers.
thurston profile picture
@Long Time Running I think it may be more accurate to say that Putin has aggravated the energy crisis, it was well underway before March. Some of the symptoms you note, such as a shortage of frac sand and truckers clearly preceded the war. www.reuters.com/...

I think it is fair to say that Biden (like most US Presidents) has sought to influence oil markets, he actually campaigned on "phasing out" fossil fuels and even putting oil company executives in jail.

The challenge we face as investors is to figure out the balance between short vs long term factors. The SPR release is scheduled to end give or take on election day. Long term, world-wide oil consumption is still in an uptrend, even though some say the world will end due to climate change: changing this trend would crush the low and middle classes world-wide.

But some of the current strength is due to years of low prices, which meant cancelled projects. I'm having a good year too ... somebody made the interesting comment that oil/energy stocks are "over bought" (short term) and at the same time "under owned" (long term).
“What does it mean”….It means FJB is going to piss 180MB into the wind trying to save the midterms. Suppressing production and ensuring an even greater price spike at a later date…gotta love government intervention in markets!
@crusherf15 - already owning numerous midstreams, I started weighing heavily into the producers the same week biden was elected.......higher oil prices were pretty much a given with fossil fuel haters in power......
pro8 profile picture
Shale giants swear they won't drill more


So are these guys capitalist or Patriots..... Enquiring minds want to know?
@pro8 One would hope they are realists. But I’m not holding my breath, they always give in eventually. The hope is they do not start to pile up debt like they did in the past. Many of these companies were months from collapse and now everyone wants them to start acting reckless again.
pro8 profile picture
I highly doubt a big price spike in 2023 ... the shale guys are squirming right now trying to keep their hands off their wallets.....those $ signs in their eyes are getting bigger and bigger ..... the offshore boys their hands are starting to get real twitchy also.... and no telling what OPEC will do minus the Russkies ...

right before the pandemic they were trying to out do each other in flooding the market in a battle for market share... now they can just bump up production slowly and make a killing... if we actually have a market economy, the not so hidden hand of greed coming into play , the law of supply and demand working, then spike is not at all likely and definitely not inevitable... of course if this does not happen then we may be heading to that Dictatorial oligarchical control that it seems a lot of the right wingers are yearning for ....
@pro8 - Seeking Alpha.. April 3 - US production fell 206,000 bpd in December and another 216,000 bpd in January..........

We shall see……
I don’t share your view, for multiple reasons.

I assume that you don’t actually work in the industry and are just speculating with no personal, actual, useful experience.
“Stansberry report” said more than 2 trillion barrels are here in US. They could solve the inflation problem and pay off our national debt with all this available oil . Americans lives would be made better instantly but is is all about power and control. They are intentionally destroying the economy,using oil shortages as the tool. It is the reason we are sanctioning Russia. The response to Covid was pure evil meant to also destroy our economy. The mandates did the same which is why they ignored natural immunity and still do.
pro8 profile picture
@gdocr QAnon Shamon with tele from prison?
@pro8 how much destruction does Biden and dems have to do before some sheep stop jumping off the cliff?
@pro8 Typical liberal. Can’t make a rational,reasonable argument for your beliefs. You just start insulting people.
Is it a certainty that storage will build this summer with this SPR release? Currently we are still drawing with about 3 million barrels being released per week. Some say that the infrastructure only allows 600-700 k barrels/day to get to market from SPR. So that could mean only a couple million additional barrels from SPR per week compared to what is happening right now.
@Spec70 - and what will this large SPR release do? It kicks the can down the road - will have short term relief but longer term pain. The oil companies taking the SPR oil will have to pay it back in 2023-4 thus increasing oil demand further out.......not to mention putting SPR at dangerously low level.

But that's fine with me.......CVE, OBE and others I own will be killing it in cash flow/earnings this year and even more so for the next several years. Secondly, a tamer oil price this year will hopefully remove potential demand destruction this year.........
SA-NJ52 profile picture
Energy will be remembered as Uncle Joe's biggest policy screw up of his political career.

Cancelling KXL, asking the tyrants in Saudi, Iran and Venezuela to produce more oil, considering a 12500 subsidy on flakey EVs, lack of support for clean coal, little support for hydrogen as the real transportation fuel and other failed policies will be documented by historians.

Let us hope he will do the right thing and not stand for a second term. My candidates were Tom Steyer and Michael Bloomberg. Hopefully these billionaires will return to fight The Donald in 2024.

@gandc Why do you think those guys will do anything different than Jo(k)e? Besides, instead of that pair, how about this pair: Kamala and Hillary.
I am not a Trump supporter. I hope that legal issues remove him from running, so that a better, less caustic Republican candidate can emerge. I like Nikki Haley.

But Steyer? Really? He wants to destroy our industry, with no thoughtful, practical plan to replace it. Terrible candidate. Worse than terrible. His knowledge of actual, real, useful, economic, practical energy sources would fit on a postage stamp with room left over. Unbelievable....
pro8 profile picture
bigbenorr profile picture
SPR inventories = -180 M
Commercial inventories +180M
Net gain = 0
@bigbenorr Mostly true, however, the US will end up exporting a pretty big chunk of that oil and/or refined products, so overall oil inventory will go down, and it is going to go down faster than it would have without the release, since oil prices will stay cheaper (especially in the US, incentivizing export)
jodihn profile picture
Let's go VLO - might have to hang on to it a bit longer....
I think it’s a bit premature to call Russian production going forward. They haven’t yet had to absorb the fall out from oilfield service providers pulling out or equipment embargoes.
It's amazing (not really) how just in a few short months ago, oil companies were being demonized for producing nasty fossil fuels by biden, etal only to be accused of being unpatriotic for NOT producing more oil.

And Biden says drill, drill, drill but then proposes a Windfall Profit Tax upon producers for making a profit on drill, drill, drill..........PATHETIC leadership.....

Wonder why energy industry does NOT trust this admin.......why invest $billions in production, pipeline construction, etc if when the wind changes, these projects will be shut down, $lost, and back to demonizing again..........
Long Time Running profile picture
@limitspecs38 capitalism, those that see opportunity will take risk.

Oil production is increasing in the US at a normalized rate limited by supply chains and labor.

It was pointed out in another article, the oil business crashed in 2014, companies went bankrupt, there was a lot of downsizing and retrenchment, limiting response in today's environment.

The shale drillers are now lean, capital efficient with return to shareholders before growth.

No more ponzi schemes.
@Long Time Running - agree with all you say.......but I'm long Canadians CVE, OBE, Baytex, Gear, and also PBR plus numerous pipelines.......insanely overweight energy.........
thurston profile picture
@Long Time Running I think the oil business (at least the oil price) crashed in 2016... otherwise agree with what you say.
lol wut profile picture
Does it matter where the barrels are coming from if the entire crude storage complex is drawing down?
Chancer profile picture
Thanks for great timely article to put the this in perspective.
If Biden adm. want to lower prices at the pump they should cut gasoline tax first.
@Tmac. Not only the Federal government but also the states.

All federal gasoline excise taxes go into the federal highway trust fund that funds highway construction. They aren't going to cut THAT particular pork barrel.
Best risk/reward going forward is the refiners. PSX will print money, and offers a ton of value. It's share price has lagged.
I don't see US storage building, the SPR releases will go to Asia and lower their costs
RySci profile picture
@twfry I view this article as a very conservative base case. And I think that’s what the intention is. Fact is we don’t want a super spike/ recession just as O&G stocks are gaining some momentum. Any increase in exports, which are likely as you said, is bullish upside for sure.
Thanks for the caution. At this level even energy equities seem valued higher. Do you still see significant rerating to the upside from current levels? If so, what are the companies that you think are still undervalued.
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