The Bryan Mound storage facility in Brazoria County, Texas, is one of four sites that make up the United States Strategic Petroleum Reserve. (Reuters)
The US will release 50 million barrels of crude oil from its strategic reserve along with China, Japan, India, South Korea and the UK – an unprecedented concerted effort by the world’s biggest oil consumers to adjust prices is at risk of an OPEC+ backlash.
But the oil market was initially engulfed by the details of the bid – much of the oil would need to be returned to storage by the refineries that bought it, and the international contributions were much smaller than anticipated. ants. After the initial drop in price, oil gained more than a dollarfirst a barrel.
The OPEC+ response will be key to the plan’s ultimate success or failure. Officials from the Saudi-led group, which is meeting to set policy next week, have warned that they will likely respond by canceling plans to boost their own production, denying receive the replenishment of oil reserves to the market.
At stake is the price of the world’s most important commodity like President Joe Biden faces the sharpest inflation in more than a decade, an increase that affects his approval ratings and threatens to undermine the post-Covid economic recovery. On Tuesday, the administration said it had other tools to lower energy prices if needed.
Of the 50 million barrels, 32 million barrels will be released from the US Strategic Petroleum Reserve for exchange over the next few months, while 18 million barrels will come from a quick release from an authorized sale. earlier, the White House said in a statement on Tuesday. It represents one of the largest-ever discounts from the reserve, surpassing US interventions amid the unrest in Libya in 2011 and Operation Desert Storm. opening in 1991.
A senior administration official told reporters Tuesday that the crates will begin shipping in mid to late December.
West Texas Intermediate futures rose $1.01 to $77.76 a barrel at 9:22 a.m. in New York on lower-than-market crude oil inventories than expected. Oil prices have fallen sharply in the week since President BidenThe administration has begun to discuss the release of crude oil from the reserve.
Biden’s decision to collectively release crude stocks after OPEC+ countries rejected calls to significantly increase output marks a diplomatic victory for the US and a challenge to Saudi Arabia’s grip. -Ut, Russia and other OPEC + producers in the market.
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Bob McNally, president of the consulting firm Rapidan Energy Group and a former White House official under President George W. Dust. “If it comes to a test of will and capacity between several strategic oil reserve holders led by the US and OPEC+, the market is likely to bet on the latter prevail.”
Under the plan, the US would conduct the exchange for several months, with oil companies owning the crude now and then returning the supply to stockpiles later, when prices have dropped.
The two-pronged oil release plan, the result of months of discussions and diplomacy, has been adjusted to current market conditions, with high oil prices now expected, senior administration officials said. will decrease in the coming months.
The administration may also make adjustments to exchanges in the coming months as it deals with a dynamic oil market, the administration official said.
The administration has been working to identify the best tools to tackle the current dynamics problem, one of the officials said. It has so far rejected calls from members of Mr Biden’s party to rein in US oil exports, amid warnings that could backfire by actually discouraging production in the US. water.
Biden, who is scheduled to deliver comments on the economy and consumer prices later Tuesday, has been seeking a joint communique for weeks, including during a virtual summit with Chinese President Xi Jinping. Bin Binh. Finally, China was among the countries that agreed to the move. Previous global efforts to tap stockpiles – such as the release of 60 million barrels in 2011 amid instability and supply disruptions in Libya – have been coordinated by the International Energy Agency.
“SPR mining will provide much-needed temporary relief at the pump and will signal to OPEC that it cannot recklessly manipulate supply to artificially increase gas price,” Senate Majority Leader Chuck Schumer said in a statement.
Asian nations join the US in liberating oil, sending a supportive political signal, but a country with low oil market value due to the small quantity involved, disappointing traders .
India said it would ship 5 million barrels, according to a statement. China did not disclose its contribution, but a Western official familiar with the matter said the contribution would be relatively small, between 7 million and 15 million barrels. South Korea said it would decide details such as volume and timing after discussing it with partner countries but said it could be around 3.5 million barrels. Japan said it would ship 5 million barrels or less. The UK contribution is expected to be even smaller, the same official said.
“This is a hugely political move and Asian countries are adding only a small, largely symbolic amount,” said Amrita Sen, co-founder of consulting firm Energy Aspects Ltd.. London.
Gasoline prices
Biden has been under increasing pressure to prevent rising energy prices that threaten to undermine the post-pandemic economic recovery. OPEC+ had previously rejected his request for a large production increase and instead only increased output by 400,000 bpd in December.
According to the car club AAA.
Rising motor fuel prices pose a political risk to any US president. But Biden has more reason to worry, as high energy costs and rising inflation could hamper the economic recovery from the pandemic and his ability to enact major social spending legislation.
Business groups and Republican lawmakers said they opposed the move. Christopher Guith, Senior Vice President of the Chamber of Commerce’s Global Energy Institute, argues that reserves should only be tapped during a genuine supply disruption and said the Biden administration should instead focus on encourage domestic oil production.
“The real strategic oil reserves of the United States are located in places like the Permian Basin and the Gulf of Mexico,” Guith said in an emailed statement. “Instead of ineffective Band-Aids, the White House should focus on policies that encourage domestic oil production and nature Air. ”
The United States Strategic Petroleum Reserve, the world’s largest government reserve, was established following the Arab oil embargo in the 1970s and was tapped in response to Operation Desert Storm in 2016. 1991, Hurricane Katrina in 2005 and supply disruptions in Libya 2011. It has also been used to lower domestic gasoline prices, such as that of President Bill Clinton a few weeks before the 2000 election, as well as financial support for unrelated domestic statutes.
Stockpiles stood at 606.1 million barrels as of Nov. 12, enough to replace more than half a year of net US crude imports. Current inventory is around 85% of its maximum allowed storage, after withdrawal.
Obligatory sales
Under the law, the Department of Energy is already obligated to sell 260 million barrels of oil from its reserves by fiscal year 2027. The additional issuance could now drive prices slightly lower, analysts said, although though the impact would be temporary and could be muted by market expectations of a sell-off of the administration Biden spent weeks telegraphing.
According to the Department of Energy’s website, the maximum drawdown is 4.4 million bpd, and it usually takes 13 days for oil from reserves to reach the open market following the president’s decision. But the mere announcement that reserves are being tapped can have an immediate, if short-term, impact on oil prices.
The idea of using America’s emergency oil stockpile to lower prices divides members of Biden’s own political party. House Majority Leader Steny Hoyer, a Democrat from Maryland, said November 16 he did not support the move, noting that the SPR was intended to protect the US from supply shortages in Middle East.
US refineries are now exporting the most gasoline since 2018, before the pandemic broke out.
Under the 1975 law establishing the reserve, the president can order a full drawdown in the event of a “severe interruption of the energy supply” that threatens national security or the economy. A limited reduction (up to 30 million barrels) can be ordered in the event of a “shortage in domestic or international energy supplies of significant scope or duration.”
