The release of 60 million barrels of oil from the SPR is unlikely to do much more to keep down the price of oil. My guess is that we have already seen the bottom for oil, and that – so long as Greece holds together – prices will firm from here.
The reason that the announcement date is likely to be where we see the largest price impact is that markets know this is a temporary increase in supply. As such (the hated) speculators will price in the temporary increase, and smooth the price adjustment by storing the oil and on-selling it later.
The cost of storage and opportunity cost of the capital bound this price smoothing. Folks have to pay cash upfront for the oil, and also must pay storage costs – so they must expect a higher future sale price, else they would not store it. These costs rise with time until the sale, so the proportion of the oil the IEA releases that is held by speculators for later sale is likely to decline with time (if storage was free and interest rates zero, speculative storage may totally smooth out the temporary increase in supply).
As a result, the of oil price will not fall by as much as would be expected given an unexpected 2m bpd (~2.3% of the 87m bpd of current production) permanent increase in supply. The maximum impact is likely to be when the release is announced, as current oil purchases will be put off until later — when increased supply is expected to make it cheaper. However, at this point, buying by speculative accounts for later sale will also be around its peak.
As the IEA’s ‘gushing month’ passes, these speculators will prevent the price from immediately rising all the back by (re)releasing their recently acquired reserves — and we will glide back onto the price path determined by market forces over time as their supply approaches zero.
I am a believer in the great Eastern story, so i think demand will keep rising more quickly than supply, and that as such oil prices will resume their uptrend. To my eye, this dip has us back on the uptrend line marked out by the mid 2009 and mid 2010 lows.