Biden has grown frustrated at repeatedly asking the Organization of the Petroleum Exporting Countries and its allies, known as Opec+, to pump more oil without getting any response. — Reuters pic
WASHINGTON, Nov 24 — The administration of US President Joe Biden announced on Tuesday it will release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try 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 grown frustrated at repeatedly asking the Organization of the Petroleum Exporting Countries and its allies, known as Opec+, to pump more oil without getting any response.
“I told you before that we’re going to take action on these problems. That’s exactly what we’re doing,” Biden said in remarks broadcast from the White House.
“It will take time, but before long you should see the price of gas drop where you fill up your tank, and in the longer-term we will reduce our reliance on oil as we shift to clean energy,” he said.
Crude oil prices recently touched seven-year highs and although they are still some way short of levels reached between 2011 and 2014, when they broke through US$100 a barrel, many consumers are feeling the pain of a dramatic increase from a year ago.
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 privately held reserves.
Details on the amount and timing of the release of oil from South Korea, Japan and China were not announced. Seoul said it would decide after discussions with the United States and other allies. And Japanese media said Tokyo would detail its plans on Wednesday.
It was the first time that the United States had 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 rebuffed requests to pump more at its monthly meetings. It meets again on Dec. 2 to discuss policy but has so far shown no indication it will change tack.
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 sees as too slow — and it remains worried that a resurgence of coronavirus cases could once again drive down demand.
Recent high oil prices have been caused by a sharp rebound in global demand, which cratered early in the pandemic in 2021, and analysts have said that releasing reserves may not be enough to curb further rises.
“Its not large enough to bring down prices in a meaningful way and may even backfire if it prompts Opec+ to slow the pace at which it is raising output,” said Caroline Bain, chief commodities economist at Capital Economics Ltd.
Biden’s political opponents, meanwhile, seized on the announcement to criticize his administration’s efforts to decarbonize the US economy and discourage new fossil fuel development on federal lands.
“Tapping the Strategic Petroleum Reserve will not fix 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 ranking Republican on the Senate energy committee.
Benchmark Brent crude was trading above US$80 a barrel on Tuesday, up from its levels before the announcement but still well below last month’s three-year high of more than US$86. Brent futures rose US$2.65, or 3.3 per cent, to US$82.35 a barrel by 12:52 p.m. EST (1752 GMT), while US West Texas Intermediate (WTI) crude rose US$1.91, or 2.5 per cent, to US$78.66.
Talking with partners
The release from the US 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 several months, while the administration would accelerate a sale of 18 million barrels already approved by Congress to raise funds for the budget.
“We will continue talking to international partners on this issue. The president stands ready to take additional action if needed, and is prepared to use his full authorities working in coordination with the rest of the world,” a senior US administration official told reporters.
An OPEC+ source and several market analysts said the release was not as big as the headline figure suggested. They said Britain and India were releasing modest amounts and the United States had already announced some releases, and so the additional quantity was less than expected.
But the effort by Washington to team up with major Asian economies to lower energy prices sends a warning to OPEC and other big producers that they need to address concerns about high crude prices, up more than 50 per cent so far this year.
Suhail Al-Mazrouei, energy minister of the United Arab Emirates, one of Opec’s biggest producers, said before details of the release from US reserves was announced that he saw “no logic” in lifting UAE supply for global markets.
An Opec+ source said releasing reserves would complicate calculations for OPEC+, as it monitors the market on a monthly basis.
“These developments point to a period of heightened political tensions between the world’s biggest consumers and Opec+, which implies increased oil price volatility,” said Henning Gloystein at Eurasia Group.
The United States historically has worked on coordinated stocks releases with the Paris-based International Energy Agency (IEA), a bloc of 30 industrialised energy consuming nations.
Japan and South Korea are IEA members. China and India are only associate members.
Under a swap from US reserves, oil companies taking crude must return it – or the refined product – plus interest. Swaps are typically offered when oil firms face supply disruptions, such as a pipeline outage or damage from a hurricane.
Outright sales are less common. US presidents have authorized emergency sales three times, most recently in 2011 during a war in Opec member Libya. Sales also took place during the Gulf War in 1991 and after Hurricane Katrina in 2005. — Reuters