Utilizing reserves will help ease rising fuel prices, and several countries are considering the move.
OPEC + officials have warned that they are likely to respond to plans by the world’s largest oil consumers to release oil from their strategic supplies, starting a battle for control of the global energy market.
President Joe Biden on Tuesday will announce a plan to release reserves from the Strategic Petroleum Reserve in tandem with China, India, Japan and South Korea, according to officials briefed on the matter. The move, weeks into planning, is designed to ease this year’s rise in fuel prices for executives and businesses.
OPEC + delegates said the release of millions of barrels from the stocks of their biggest customers was unjustified by current market conditions and the group may need to reconsider plans to add more oil production when they meet next week.
The struggle threatens the biggest upheavals in oil geopolitics since the price war between Saudi Arabia and Russia in early 2020. At stake is the price of the world’s most important commodity, as politicians and central bankers face the strongest inflationary boom in more than a decade. It also shows the strained relationship between Washington and Riyadh, traditionally a cornerstone of US relations in the Middle East.
The situation remains ongoing and plans may change, but the US is considering a release of more than 35 million barrels over time. The pending announcement was described by people who requested anonymity before official statements.
“Such a move could potentially increase interest in the oil poker game and could create new tensions in the bilateral relationship between Washington and Riyadh,” said Helima Croft, chief commodity strategist at RBC Capital Markets LLC.
Despite the looming stock release, prices in New York rose nearly 1% to $ 76.63 a barrel as traders weighed in on the outlook for OPEC + response.
The alliance of 23 countries earlier this month rejected calls from US President Joe Biden and others to speed up the return of supplies that were halted during the pandemic. Deputies, refusing to be named discussing private deliberations, said even the modest production increase they had signed up for may now be revalued when the group meets next week.
“I expect OPEC + energy ministers to maintain their current plan to gradually add more supplies to the market,” Joseph McMonigle, secretary general of the Riyadh-based International Energy Forum, said in a statement on Monday. “However, certain unforeseen external factors such as a release of strategic reserves or new restrictions in Europe could lead to a reassessment of market conditions,” McMonigle said after a meeting with a Japanese foreign ministry.
For Biden, the coordinated release would be a diplomatic victory for the US, especially given China’s involvement. The matter was discussed during a virtual summit with President Xi Jinping last week.
Its struggle to lower prices stands in contrast to its predecessor Donald Trump’s attempt to persuade Saudi Arabia and Russia to end a price war in early 2020 that caused prices to plummet during the onset of the coronavirus pandemic.
It also shows that in an inflationary environment, where prices of everything from cars to meat are rising, large economies have a lower pain threshold for oil prices. During the Obama administration, oil spent more than $ 100 a barrel for years without becoming a political flashpoint.
The move will represent the largest outflow of accumulated crude oil from major economies made outside the protection of the International Energy Agency. Previous global efforts to exploit supplies – such as the release of 60 million barrels in 2011 in the wake of unrest and supply disruptions in Libya – have been coordinated by the IEA, of which China is not a member.
Japanese Prime Minister Fumio Kishida on Saturday said his government was considering a release from reserves in conjunction with countries such as U.S. Indian officials who said Monday they were studying a similar move. Indian officials said on Tuesday they were likely to participate.
Biden’s decision to draw support from China, India and Japan, which brings together the world’s top four consumers, will go bad in Saudi Arabia, traditionally on America’s closest allies in the Middle East.
Since taking office earlier this year, Biden has refused to deal directly with the kingdom’s de facto ruler, Mohammed bin Salman, whom he blames for the murder of journalist and activist Jamal Khashoggi.
The Organization of Petroleum Exporting Countries and its allies will meet on December 2 to consider an increase in production by 400,000 barrels per day in January.