The United States will release 50 million barrels of oil from reserves to curb rising gas prices
The administration of US President Joe Biden announced on Tuesday that it will release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and the United Kingdom, to try to cool prices after the OPEC + producers will repeatedly ignore orders for more crude.
Biden, facing low approval ratings amid rising inflation ahead of next year’s Congressional elections, has been frustrated by repeatedly asking the Organization of the Petroleum Exporting Countries and its allies, known as OPEC +, to they pump more oil without any response.
“I told you before that we are going to take action on these issues. That 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 fill the tank and, in the long run, we will reduce our dependence on oil as we switch to clean energy,” he said.
Crude oil prices recently hit seven-year highs and consumers are feeling the pain of rising fuel costs. Retail gasoline prices have risen more than 60% in the past year, the fastest rate of increase since 2000, largely because people have returned to the roads as restrictions induced by the pandemic have eased. and demand has recovered.
Under the plan, the United States will release 50 million barrels, the equivalent of about two and a half days of US demand. India, meanwhile, said it would release 5 million barrels, while Britain said it would allow the voluntary release of 1.5 million barrels of oil from private reserves.
No details were announced on the amount and timing of the release of oil from South Korea, Japan and China. Seoul said it would make a decision after discussions with the United States and other allies. And Japanese media said Tokyo would detail its plans on Wednesday.
The price of oil rebounded on Tuesday, after falling for several days as rumors of the plans hit the market. Some analysts also attributed the market rebound to a lack of firm details outside of China, although Reuters reported last week that the country has been working on such a launch. Brent crude futures rose 3.3% Tuesday to $ 82.31 a barrel.
It was the first time that the United States coordinated such a move with some of the world’s largest Asian oil consumers, officials said.
OPEC +, which includes Saudi Arabia and other US allies in the Gulf, as well as Russia, has rejected requests to pump more at its monthly meetings. He will meet again on December 2 to discuss the policy, but so far he has shown no indication that he is changing course.
The group has been struggling to meet existing targets under its agreement to gradually increase production by 400,000 barrels per day (bpd) each month, a pace Washington considers too slow, and remains concerned that a resurgence of coronavirus cases can reduce demand again. .
Recent high oil prices have been caused by a sharp rebound in global demand, which crashed early in the pandemic in 2021, and analysts have said that freeing up reserves may not be enough to stem further increases.
“It is not large enough to reduce prices significantly and may even backfire if it prompts OPEC + to slow down the rate at which production is increasing,” said Caroline Bain, chief commodities economist at Capital Economics. Ltd.
The administration has also pointed to a notable gap between the price of unfinished gasoline futures and the retail cost of gasoline, which has widened to around $ 1.14 a gallon from about 78 cents in mid-October. The White House urged the Federal Trade Commission to investigate the issue last week.
Meanwhile, Biden’s political opponents took advantage of the announcement to criticize his administration’s efforts to decarbonize the United States economy and discourage the development of new fossil fuels on federal lands.
“Taking advantage of the Strategic Petroleum Reserve will not solve the problem. We are experiencing higher prices because the administration and Democrats in Congress are waging a war on American energy, ”said Senator John Barrasso, the highest-ranking Republican on the Senate energy committee.
The release of the US Strategic Petroleum Reserve would be a combination of a loan and a sale to companies, US officials said. The 32 million barrel loan will take place over the next few months, while the administration would accelerate a sale of 18 million barrels already approved by Congress to raise funds for the budget.
Warning to OPEC
Washington’s effort to partner with major Asian economies to cut energy prices acts as a warning to OPEC and other major producers that they must address concerns about high crude prices, more than 50% so far. of year.
“It sends a signal to OPEC + that consumer nations will no longer be pressured by them,” said John Kilduff, partner at Again Capital LLC in New York. “OPEC + has been stingy with its production for months.”
Suhail Al-Mazrouei, Energy Minister of the United Arab Emirates, one of OPEC’s largest producers, said before details of the release of US reserves were announced that he saw “no logic” in increasing supply from the United Arab Emirates. United Arab Emirates for global 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 large as the main figure suggested. They said Britain and India were releasing modest amounts and that the United States had already announced some launches, so the additional amount was less than expected.
The United States has historically worked on a coordinated inventory release 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.