US President Joe Biden announced on Tuesday that the Department of Energy would release 50 million barrels of oil from the Strategic Petroleum Reserve (SPR) in a bid to lower high gasoline prices in a coordinated effort with other major oil-consuming nations.
The U.S. Department of Energy will make available releases of 50 million barrels from the SPR, of which 32 million barrels will be in the form of an exchange over the next several months, releasing oil that must be returned to the Strategic Petroleum Reserve in the years ahead. Another 18 million barrels will be an acceleration into the next several months of a sale of oil that Congress had previously authorized, the White House said on Tuesday.
The SPR release from the United States is being carried out in parallel with other major energy-consuming nations, including China, India, Japan, the Republic of Korea, and the United Kingdom.
"The President stands ready to take additional action, if needed, and is prepared to use his full authorities working in coordination with the rest of the world to maintain adequate supply as we exit the pandemic," the White House said.
"American consumers are feeling the impact of elevated gas prices at the pump and in their home heating bills, and American businesses are, too, because oil supply has not kept up with demand as the global economy emerges from the pandemic," the U.S. Administration said.
Other major consumers-including India, China, and Japan-have already signaled they would also release crude from their reserves.
Yet, analysts expect the coordinated move to have only a temporary effect on international crude oil prices and say the market has likely already priced in the SPR releases.
At the same time, the OPEC+ group warned on Monday that it could respond to a coordinated release by potentially reconsidering plans to continue adding more production each month to meet demand.
OPEC+ is set to meet next week to decide the oil production policy for January. The coordinated pushback against the OPEC+ policies could prompt the group to lower or even pause its monthly addition of 400,000 bpd of oil production, ING strategists Warren Patterson and Wenyu Yao said on Tuesday.
"The prospect of retaliation from OPEC+ does leave the potential for further volatility in oil markets," they added.
By Tsvetana Paraskova for Oilprice.com
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Comments
I think American shale oil drillers should completely forget shale oil business & think of doing some other business like hi tech gadgets like Apple or may be web retailing like Amazon or may be disrupting EV business to take on Tesla.
Even a release of 100 million barrels (1-day global consumption) could only lead to temporary price reduction of up to $2.0 a barrel but prices will certainly rebound much higher than the pre-release levels. The reason is the robustness of global oil demand which is underpinned by a global economy growing this year at 6.3%, its fastest growth rate in 15 years, a steep decline in international oil inventories and a firm stand by OPEC+ on oil production.
OPEC+ doesn’t believe there is a supply shortage in the global oil market. Therefore, It has rightly refused to heed President Biden’ calls to increase production beyond what it has already agreed upon for fear of tipping the oil market towards glut. Furthermore, the rise in gasoline prices in the United States is most probably caused by rising inflation. In a nutshell, it is the fault of the US economy itself and not a shortage in global oil supplies.
However, if OPEC+ senses a threat to oil prices from consuming countries’ release of barrels from their strategic reserves, it could decide in its meeting on 2 December 2021 to freeze the current agreed increase of production by 400,000 barrels a day (b/d) and could even decide to cut production to defend oil prices.
Therefore, the United States and other countries should let the market decide on price levels. One shouldn’t swim against the tide.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London