After weeks of signaling and speculation, a group of major oil consumers including the United States has announced a coordinated plan to tackle rising energy costs by freeing crude from strategic reserves. . The question now is whether it works or not.
In a rare coordination with other oil-consuming nations, the US government said on Tuesday that it plans to supply as much as 50 million barrels from the Strategic Petroleum Reserve. China, India, Japan, South Korea and the United Kingdom will join the effort.
The US decision to tap the emergency stockpile was made when President Joe Biden face growing pressure to come out Fuel prices rise for Americans affected by the highest inflation rate in decades. But it also carries risks, including a possible OPEC+ backlash threatening to cancel any bailout measures. And with so many unknowns remaining, including whether the oil is the type of oil the US market is looking for, it’s hard to say whether households will actually see much – if any – at all. timely acquisition to prevent an expensive holiday travel season.
Here’s what we know so far:
How quickly will additional crude oil hit the market?
The Department of Energy is supplying 32 million barrels in exchange and 18 million barrels in advanced sales that have been pre-approved by Congress. Bidding for the exchange ends on Dec. 6. For those taking crates from the exchange program, supply is mainly expected to arrive between January and April, although some may arrive. as early as the end of December. For those crates for sale, tenders will not be announced before December 17. It can take several weeks between the auction and actual delivery, meaning little hope of an immediate relief. ie.
Who will take the oil?
The US government is expected to supply oil to qualified contractors, including major oil companies and international trading companies. In previous SPR issuances, refiners that have been awarded oil awards include major players such as Marathon Petroleum Corp. and Exxon Mobil Corp. Previous contracts have also been granted to trading companies such as China’s Trafigura and Unipec. Some of the crates in the previous sale were also sent abroad; So far, there is no provision for keeping this oil in the US. We’ll know who gets it at this point on December 14.
Where is the oil now?
DOE operates four underground bunkers, one each in Texas and Louisiana. Combined, they currently have about 606 million barrels in stock, the least since 2003 because they sold it as part of a government-mandated program.
What kind of crude oil is being released?
The DOE has not released specific details about the type of crude oil offered for sale, but it has offered some clues. Up to 10 million barrels per barrel will be supplied from two locations in Texas, while 5 million barrels will come from one location in Louisiana. These sites are primarily acidic, sulfur-rich crumbs. Up to 7 million barrels will be offered for sale from another location in Louisiana, which holds most of the sweet crude. That’s important because sour crudes have fallen out of favor with refineries globally because they require more processing and are often expensive. nature Air.
Will this release make a dent?
People have been talking about this possibility for so long that many traders say the planned release has been incorporated into the price of oil. That would explain why oil prices rose after this announcement. There is also a concern that OPEC+ officials, who don’t like being besieged, might react by canceling their own production increase plans, negating the addition of stockpiles to the market. The stalemate sets off a battle for control of the global energy market. In short, consumers looking for pump relief likely won’t see a drop in gas prices for months, if at all.
In addition, in 2019, before the pandemic, the United States consumed 20 million barrels of gasoline per day. So 50 million issued from US reserves, even though it is combined with foreign issuance, may not be enough to change the market equation much.
