US plans emergency oil release
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The United States was expected to announce a loan of crude oil from its emergency stockpile yesterday as part of a plan it hashed out with major Asian energy consumers to lower energy prices, a Biden administration source familiar with the situation said.
The move is designed to tame soaring energy prices after the OPEC producer group and its allies rebuffed repeated requests from Washington and other consumer nations to pump more quickly to match rising demand.
US President Joe Biden is facing low approval ratings due to high prices for gasoline and other consumer items in the recovery from the coronavirus pandemic, posing a threat to him and his Democratic party ahead of next year’s congressional elections.
A so-called “swap” from the US Strategic Petroleum Reserve was to be announced yesterday in a move coordinated with several countries, the source said. The source did not specify how much oil would be released from the stockpiles.
Biden has already asked China, India, South Korea and Japan to release strategic oil stocks in concert with the United States. Japanese and Indian officials are working on ways to do that, Reuters reported.
The unprecedented effort by Washington to team up with major Asian economies to lower energy prices is intended as a warning to major producers that they should pump more oil to address concerns of high fuel prices in powerhouse economies.
OPEC+, which groups the Organization of the Petroleum Exporting Countries and allies including Russia, plans to meet on December 2 to discuss output.
The impact of a coordinated oil release would depend on the timeframe and quantity, but a release of more than about 60 million barrels in around 30 days would be seen by the market as “very negative for pricing,” said Commonwealth Bank of Australia analyst Vivek Dhar.
“This situation is coming at a time when this market was shifting and global oil stockpiles are rising. So this could see prices fall more steeply than you think,” he said, pointing to new coronavirus lockdowns in Europe.
The United States historically has worked with the Paris-based International Energy Agency, a bloc of 30 industrialized energy-consuming nations when global supply issues demand a coordinated release of stocks. Japan and South Korea are IEA members. China and India are only associate members.
Under an SPR swap, oil companies take crude oil from the stockpiles but are required to return it — or the refined product — plus interest. Swaps are typically offered when oil companies face a supply disruption like a pipeline outage or hurricane damage.
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