In an unprecedented move, the United States, the world’s largest oil consumer, has decided to release millions of barrels of oil from its strategic stockpile to curb rising energy prices. Washington took the move along with other major oil consumers China, India, Japan, the UK and South Korea. The US announcement came after OPEC+, an alliance between the Saudi Arabia-led Organization of the Petroleum Exporting Countries (OPEC) and a handful of Russian-led oil producers, responded several calls from US President Joe Biden, as well as Beijing and New Delhi. to pump more oil.
Oil prices have risen more than 50 percent so far this year as fuel demand soars amid a rapid economic recovery from pandemic lows. High prices have further fueled inflation concerns, which are already weighing on the post-pandemic global economic recovery.
Louise Dickson, senior oil market analyst at Rystad Energy, said the US action marked an “official emergence of an ‘anti-OPEC+’, a group of oil-consuming countries taking supply-side dynamics into their own hands in the unconventional and unprecedented release of strategic petroleum reserves (SPR).” “[The] This historic but highly unorthodox move sends a clear message to OPEC+ that it is not the only player on the global stage in the oil market,” Dickson said in an emailed statement.
OPEC+ likely to bounce back
However, concerted action failed to cool the market, with oil prices soaring to a week-long high on Nov. 24 as the publication’s scale fell short of expectations and traders braced for a response from OPEC+ when its members meet next week. “The US-driven coordinated SPR release disappointed energy traders and reminded that OPEC+ is still leading the way,” said Edward Moya, senior market analyst at OANDA. DW. “The benefit of the SPR release was largely priced in and now the oil market can trade on the deficit that remains firm,” he said.
Prices for Brent crude are down 10 percent from their recent peak in October, in part following reports of Biden’s diplomatic efforts to get major oil consumers to agree to a coordinated release. OPEC+ delegates have warned they may reconsider their plans to gradually ramp up oil production when they meet on Dec. 2 in response to the US-led action. Bloomberg News reported.
The cartel, which sits at millions of barrels per day of additional production capacity, is resisting calls to increase production beyond the 400,000 barrels per day it is adding to the market each month to meet rising demand. Members justify their cautious approach, pointing to the uncertainty surrounding the still raging pandemic, which has led to new lockdowns in some countries in Europe. “The upcoming OPEC+ meeting should be closely watched as it could present an interesting range of poker games ahead,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy. “If the move is seen as aggressive by OPEC+, the group could theoretically cut supply as early as January to maintain profits.”
Analysts say the coordinated release could further strain bilateral relations between Washington and Riyadh. “It goes to show that all is not well — quite complicated in today’s energy markets,” said Jonathan Elkind, former assistant secretary for international affairs at the US Department of Energy. DW. “There is a complicated dynamic between Washington and Riyadh, but first of all, this move is not about Washington and Riyadh. This is about how you get out of a pandemic that is still very much in effect in some countries and yet you see the economic recovery happens in others.”
China without obligation
The United States has in the past coordinated the release of oil reserves with the Paris-based International Energy Agency (IEA), an autonomous organization made up of 30 member states. The last attempt was in 2011 during the Libyan crisis when 60 million barrels were released. It is the first time that China, which is only an associate member of the IEA, has been part of a coordinated release. “China is examining the current conditions in the oil markets. They are considering their self-interest and they are taking steps that they believe reflect their own self-interest,” Elkind said.
China is the world’s largest oil importer and has tapped its reserves several times this year to rein in domestic oil prices, but Beijing has yet to make any concrete announcement regarding the US-coordinated release. A spokesman for China’s foreign ministry said on Nov. 24 that Beijing will extract crude oil from its reserves as needed. “As a result, the Biden administration will have to turn to China again. This is a direction that benefits everyone, but China clearly has the upper hand,” the state-backed Chinese government said. Global times said.
With input from Reuters news agency.