The administration of US President Joe Biden announced on Tuesday that it would release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, in an attempt to cool prices after OPEC + producers repeatedly ignored calls for more crude.
Biden, facing low approval ratings amid rising inflation ahead of next year’s Congressional elections, has become frustrated with repeatedly asking the Organization of the Petroleum Exporting Countries and its allies, known as OPEC +, to pump more oil without any response.
“I told you before that we were going to take action on these issues. This is exactly what we are doing, ”Biden said in remarks broadcast from the White House.
“It will take time, but before long you should see the price of gasoline drop where you refuel, and in the longer term we will reduce our dependence on oil as we move to clean energy. “, did he declare.
Crude oil prices recently hit seven-year highs, and consumers are feeling the pain of rising fuel costs. Retail gasoline prices have risen by more than 60% in the past year, the fastest rate of increase since 2000, in large part because people have returned to the roads as restrictions imposed pandemic eased and demand rebounded.
As part of this plan, the United States will release 50 million barrels, the equivalent of about two and a half days of American demand. India, meanwhile, has said it will release 5 million barrels, while Britain has said it will allow the voluntary release of 1.5 million barrels of oil from private reserves.
Details on how much and when the oil will be released from South Korea, Japan and China have not been announced. Seoul said it would decide after talks with the United States and other allies. And Japanese media said Tokyo will detail its plans on Wednesday.
The price of oil rebounded on Tuesday, after falling for several days as rumors of plans made their way into the market. Some analysts have also attributed the market rebound to the lack of firm details from China, although Reuters reported last week that the country was working on such a release. Brent crude futures rose 3.3% on Tuesday to $ 82.31 a barrel.
This was the first time the United States has coordinated such an initiative with some of the world’s largest Asian oil consumers, officials said.
OPEC +, which includes Saudi Arabia and other U.S. allies in the Gulf, as well as Russia, has rejected demands to pump more at its monthly meetings. He meets again on December 2 to discuss politics, but has so far shown no indication that he will change course.
The group is struggling to meet existing targets under its deal to gradually increase production to 400,000 barrels per day (bpd) each month – a pace Washington considers too slow – and it remains worried that ‘A resurgence of coronavirus cases could once again lower demand.
Recent high oil prices were caused by a strong rebound in global demand, which collapsed at the onset of the pandemic in 2021, and analysts said releasing reserves may not be enough to curb further increases. .
“It is not important enough to bring down prices significantly and may even backfire if it prompts OPEC + to slow the rate at which it is increasing production,” said Caroline Bain, chief economist of commodities at Capital Economics Ltd.
The administration also pointed to a notable gap between the price of unfinished gasoline futures and the retail cost of gasoline, which widened to about $ 1.14 per gallon, from about 78 cents at mid-October. The White House urged the Federal Trade Commission to investigate the matter last week.
Biden’s political opponents, meanwhile, used the announcement to criticize his administration’s efforts to decarbonize the U.S. economy and discourage the development of new fossil fuels on federal lands.
“Tapping into the strategic oil reserve will not solve the problem. We are experiencing higher prices because the administration and the Congressional Democrats are waging a war on American energy, ”said Senator John Barrasso, the leading Republican on the Senate Energy Committee.
Releasing the United States Strategic Petroleum Reserve would be a combination of a loan and a sale to companies, US officials said. The 32 million barrels loan will take place over the next few months, as the administration accelerates an 18 million barrel sale already approved by Congress to raise money for the budget.
Warning to OPEC
Washington’s effort to partner with major Asian economies to lower energy prices serves as a warning to OPEC and other major producers to address concerns about high crude prices, by up over 50% so far this year.
“This sends a signal to OPEC + that consumer countries will no longer be pushed around by them,” said John Kilduff, partner at Again Capital LLC in New York. “OPEC + has been stingy with its production for months now.”
UAE Energy Minister Suhail Al-Mazrouei, one of OPEC’s biggest producers, said before details of the release of US reserves were announced that he saw “no logic” in increasing UAE’s supply to world markets.
An OPEC + source said releasing reserves would complicate calculations for OPEC +, as it monitors the market on a monthly basis. However, they and several market analysts said the release was not as big as the main figure suggested. They said Britain and India were releasing modest amounts and the United States had already announced some releases, so the additional amount was lower than expected.
The United States has historically worked on coordinated stock releases with the Paris-based International Energy Agency (IEA), a bloc of 30 industrialized energy-consuming countries.
Japan and South Korea are members of the IEA. China and India are only associate members.