The United States announced on Tuesday that it will in coordination with China, South Korea, Japan, India, and Britain, release millions of barrels of oil from strategic reserves in a bid to cool prices after Opec+ producers continually disregarded calls for more crude.
US President Joe Biden has become frustrated at the lack of response from the Organisation of the Petroleum Exporting Countries and its allies, known as Opec+, to calls for pumping more oil.
Recently, Crude oil prices reached a seven-year high, and although they are still some way short of levels reached between 2011 and 2014, when they broke through $100 a barrel, a huge number of consumers are suffering due to the drastic increase compared to a year ago.
The US announcement was for a release of 50 million barrels, which equates to around two and a half days of US demand. India said it would release 5 million barrels, while Britain added that it would allow the voluntary release of 1.5 million barrels of oil from privately held reserves.
Details regarding the quantity and timing of the release of oil from South Korea, China, and Japan remain undisclosed. Seoul said that it would make the final decision after discussions with the US and other allies. While Japanese media said that Tokyo would reveal its plans on Wednesday.
According to officials, this was the first time that the US has coordinated such a move with some of the world’s largest oil consumers.
Opec+ includes Saudi Arabia and other US allies in the Gulf, along with Russia. The alliance has rebuffed requests to pump more during its monthly meetings. It is scheduled to meet again on Dec 2 when it will be discussing the policy but so far it has shown no signs of changing the decision.
The group has been unable to meet existing targets under its agreement to progressively increase production by 400,000 barrels per day (bpd) every month. Washington seems to think the pace determined by the group is too slow. The group remains worried that a resurgence of coronavirus cases could again push down demand.
The sharp rebound in global demand drove oil prices to new highs. Analysts are of the view that releasing reserves may not be enough to curb further increases.
Caroline Bain, chief commodities economist at Capital Economics Ltd. said, “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”.
Benchmark Brent crude was trading higher than $80 a barrel on Tuesday, up from its levels before the announcement but still significantly below last month’s three-year high of over $86.
According to US officials, the release from the US Strategic Petroleum Reserve would entail a combination of a loan and a sale to companies. 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.
A senior US administration official told the media, “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”.
An Opec+ source and several market analysts said the release was not as big as the headline figure suggested.