SINGAPORE: Governments from some of the world’s biggest economies said yesterday they were looking into releasing oil from their strategic reserves, following a rare request from the US for a co-ordinated move to cool global energy prices and ahead of a meeting of major oil producing countries.
The Biden administration has asked big oil buyers such as India and Japan – as well as China for the first time – to consider releasing stocks of crude, several people familiar with the requests told Reuters on Wednesday.
As the world economy rebounds from the pandemic, Washington is frustrated that producers in Opec+, the Organisation of the Petroleum Exporting Countries and allies such as Russia, have rebuffed US requests to speed up oil supplies. With gasoline prices and other costs rising, US President Joe Biden also faces political pressure ahead of midterm elections next year.
Opec+ plans to meet on December 2. The group has taken a deliberate approach to boosting output, viewing the economic recovery as too fragile to justify more supply.
Oil prices sank about four per cent to a six-week low after Reuters reports about the US request and China’s decision to release some crude, before recovering some ground later on Thursday. Oil prices have retreated from recent highs in anticipation that world supply will rise.
“Brent is now under 80 bucks,” said John Driscoll, managing director at consultancy JTD Energy in Singapore. “It’s having a short-term effect on oil markets. It’s probably good for at least a 5pc correction.”
China’s state reserve bureau told Reuters it was working on a release of crude oil reserves, but declined to comment on the US request.
The US has the largest strategic reserve at more than 600 million barrels. The US SPR was set up in the 1970s after the Arab Oil Embargo to ensure the nation had adequate supply to weather an emergency. In the last several years, the shale boom has pushed US output to rival that of Saudi Arabia and Russia.
By involving China for the first time, this proposal is an unprecedented challenge to Opec, the cartel that has influenced oil prices for over five decades. China is the world’s number 2 oil consumer and largest importer.
There was no immediate official reaction from Opec+ members. The group has been raising output by 400,000 barrels per day per month, gradually unwinding record production cuts made in 2020 when the pandemic sank fuel demand.
This week, Secretary General Mohammad Barkindo said Opec expects an oil supply surplus to begin building next month.
One Opec source who asked not to be named said it would be surprising to see consuming countries release stocks to lower prices rather than to meet a supply shortage.
However, several large world energy consumers have been pressing Opec to boost supply. China elected to release reserves in September to try to stabilise prices. India has expressed frustration for months, and sharply cut purchases from Saudi Arabia in the spring due to rising costs.