Sun. Nov 28th, 2021

Speculation is mounting that a coordinated release of oil reserves is on track to combat accelerating inflation.

By Bloomberg

Oil has extended declines – after four weeks of losses – on signs that the US, China and Japan are all preparing to exploit national crude reserves as concerns about accelerating inflation increase.

New York futures fell below $ 76 a barrel after losing nearly 6% last week. US President Joe Biden has been talking for several weeks about a possible release from the Strategic Petroleum Reserve, and the Yomiuri newspaper reported over the weekend that Tokyo could make a joint announcement on the issue with Washington as soon as this week.

China indicated last week it was working on another sale from its national stock.

The return of virus restrictions in Europe meanwhile indicates that there may still be a threat to the global energy demand of a reviving Covid-19. Austria goes into full closure on Monday, while Germany and other nations strike the unvaccinated as cases increase.

Oil fell from a peak at the end of October as speculation that the US and other countries would release reserves increased.

Any national sales would have to be quite substantial to move prices further, with Goldman Sachs Group Inc. which said last week that the impact of about 100 million barrels of reserve auctions has already been priced in the market.

US President Joe Biden and Chinese President Xi Jinping discussed a coordinated release of oil reserves during their virtual summit last week [File: Tingshu Wang/Reuters]

However, an internationally coordinated release will send a powerful message to the OPEC + alliance, which has so far opposed calls for faster recovery of supplies. Biden and Chinese President Xi Jinping spoke during their summit last week about the merits of using strategic reserves.

“The US has been talking for a few weeks, but they have done nothing,” said Vandana Hari, founder of Vanda Insights, referring to the release of strategic reserves. “The fact that they did not do it at multi-year highs is a sign that it is unlikely that they will make the move. Oil prices are falling due to the outbreaks in Europe, which means that pressure is already decreasing. “

Japan’s Oil Supply Act does not allow the sale of reserves due to high prices, but both the government and the private sector currently hold more reserves than the minimum required by law, according to the report in Japan’s Yomiuri newspaper , which the government quoted. sources.

Tokyo is considering releasing a portion of these excess reserves, which it believes could be sold without violating legal restrictions, he said.

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