London (CNN Business) Oil prices are pulling back sharply as investors gear up for the White House to potentiallyunleash a record amount of crude from US reserves in a bid to ease pressure at the pump following Russia’sinvasion of Ukraine.—
What’s happening: President Joe Biden is weighing a plan to release around 1 million barrels per day for a numberof months. The announcement could come as soon as Thursday, according to a person familiar with thedeliberations.
Brent crude futures, the global benchmark, dipped 6% in early trading, falling below $107 per barrel. US oil was lasttrading near $102 per barrel.
Prices have also dropped recently due to expectations for lower demand from China, a top importer, as the countryrolls out new restrictions in major cities like Shanghai to fight the spread of Covid-19.
After jumping above $139 per barrel in early March, Brent futures have pulled back sharply. They’re now more than20% below that level.
Additional supply and reduced demand should be a recipe for prices to keep declining in the near term. But there’sskepticism that tapping strategic reserves will change the underlying market dynamics over a longer period.
“Conceptually, such a release would help the oil market,” Damien Courvalin, a Goldman Sachs strategist, toldclients Thursday. “This would remain, however, a release of oil inventories, not a persistent source of supply forcoming years.”
Media reports indicate the United States could ultimately release 180 million barrels of oil from reserves stored inunderground salt caverns in Louisiana and Texas. That would be more than three times the size of the release thatthe Biden administration announced in November. Another release was coordinated with allies earlier this month.
But even that would not be sufficient to make up for the loss of Russian crude, as many traders steer clear ofsanctions and the logistics of picking up cargoes near a war zone. According to the International Energy Agency,Russian output could drop by 3 million barrels per day in April.
That means additional supply from the United States would only replace a third of the lost production from Russia.
The Organization of the Petroleum Exporting Countries, or OPEC, still looks unlikely to come to the rescue. Thegroup, which meets Thursday with allied producers including Russia, is not expected to ramp up supply beyond itsexisting plans, even though Saudi Arabia and the United Arab Emirates could theoretically do so.
It’s complicated: Russian crude has not disappeared from the market entirely. Bloomberg reports that Russia isoffering to directly sell crude to India at a steep discount. And my CNN Business colleague Matt Egan reports thatRussian energy is still drawing interest from potential buyers in the shadows as tankers turn offtheir trackers toavoid detection.
But analysts are skeptical that more entrenched factors driving up oil prices are likely to ease. That will continue topush prices higher in the long run.
“The US potentially releasing one million barrels of oil per day is unlikely to make up for the lost Russian supply, andshould fail to drive prices sustainably lower,” ING strategists said Thursday.
Signs of a housing bubble
As US home prices soar to new heights and keep on climbing, some researchers and economists say they seesigns of a housing bubble taking shape, my CNN Business colleague Anna Bahney reports.
Home prices are rising faster than they should and are becoming “unhinged from fundamentals,” according to anew blog post written by researchers and economists at the Federal Reserve Bank of Dallas.
Until recently, concerns about a bubble didn’t have widespread support. But the Fed researchers said newevidence is emerging after they examined housing markets across the country.
“Our evidence points to abnormal US housing market behavior for the first time since the boom of the early 2000s,”the researchers wrote. “Reasons for concern are clear in certain economic indicators.”
Many Americans are still scarred by the last housing crash in 2007, which was fueled by cheap credit and laxlending standards, which led millions of homeowners to owe more on their homes than they were actually worth.
This time, the economists said they are worried about a different scenario.
They called out “exuberance” and a fear of missing out as home prices keep climbing, fed by short supply, investorinterest and pandemic savings. As more buyers pile in, this can create a self-fulfilling prophecy in which pricegrowth can become exponential, they said.
What happens next? The researchers recommended policymakers and market participants closely watch localmarkets for booms in prices in order to better respond “before misalignments become so severe that subsequentcorrections produce economic upheaval.”
This billionaire investor is ditching the drama
Billionaire investor Bill Ackman made his name as an activist who waged aggressive campaigns for change atcompanies like J.C. Penney (JCP) and Procter & Gamble (PG). Now, he says he’s opting for a lighter touch.
Big pivot: In a letter to investors this week, Ackman said that his firm Pershing Square Capital Management has”permanently retired” from activist short selling, which he branded the “‘noisiest’ form of activism.”
“All of our interactions with companies over the last five years have been cordial, constructive and productive,”Ackman said. “We intend to keep it that way as it makes our job easier and more fun, and our quality of life better.”
Short selling — or placing bets that stocks will fall — has always been a divisive tactic on Wall Street. Last year, itgenerated a fresh wave of backlash as an army of traders coordinating on social media sent GameStop sharessoaring and slammed hedge funds with big short positions. Regulators have been giving the practice renewedscrutiny.
What does Ackman’s “quieter approach” look like? Pershing Square has been taking stakes in companies that itthinks will do well, like home improvement hub Lowe’s (LOW) and restaurant chain Chipotle (CMG).
The decision to play nice is a notable shift from the man who made waves with his public campaign against nutritional supplement company Herbalife. That effort sparked a dramatic television confrontation with rival CarlIcahn in 2013. Icahn, who backed Herbalife, told Ackman: “I wouldn’t invest with you if you were the last man on Earth!”