By Timothy Gardner and Muu Xu
WASHINGTON/BEIJING, Nov 19 (Reuters) – Governments of some of the world‘s largest economies said on Thursday they were studying the possibility of releasing oil from their strategic reserves, following an unusual request from the United States ahead of a meeting. Were were Oil producing countries to coordinate a measure aimed at curbing world energy prices.
The White House said on Thursday that the Biden administration has for the first time asked several countries, including China, to consider releasing crude oil reserves.
Other big consumers such as India, Japan and South Korea were also involved in the talks, several people familiar with the proposal told Reuters on Wednesday.
As the world economy recovers from the pandemic, Washington is disappointed that producers in OPEC+, the Organization of the Petroleum Exporting Countries and allies such as Russia have refused requests from the United States to accelerate supplies of additional oil.
With rising gasoline prices and other costs, Democratic US President Joe Biden is also facing political pressure in next year’s midterm legislative elections. A Reuters poll conducted in October showed that 67% of American adults agree that inflation is a huge concern.
White House spokeswoman Jen Psaki said Thursday that members of Biden’s national security team discussed the need to meet fuel demand.
“It’s an ongoing conversation and we’re doing it with a number of partners,” Saki said.
The OPEC+ meeting is scheduled for December 2. The group has taken a slow approach to increasing production because it considers economic recovery too fragile to justify an increase in supply.
Oil prices fell nearly 4% to a six-week low, following reports of a US request and China’s decision to release some crude oil, before gaining some ground on Thursday. Oil prices have fallen from their recent highs in anticipation of an increase in global supply. [O/R]
The announcement has also cooled the Asian crude oil market, and falling physical spot price premiums for crude sold to Asian buyers in the Middle East and Russia.
China’s state reserves office told Reuters it was working on publishing crude oil reserves, but declined to comment on the US request.
China held its first public auction of oil reserves in September.
Consulting firm Energy Aspects said in a note to clients that Beijing expects to release another 10 to 15 million barrels of crude oil from its reserves in eastern Zhoushan in its next round of auctions.
“Any oil released from the Chinese SPR (Strategic Petroleum Reserve) must be refilled within 90 days,” Energy Aspects said.
“The market should look at where these countries will find crude to fill these deposits, given how low the reserves are.”
The United States has the largest strategic reserves, with more than 600 million barrels. America’s strategic oil reserves were built after the Arab oil embargo in the 1970s to ensure the country had enough supplies to deal with an emergency.
In recent years, the boom in shale oil has seen US production rival Saudi Arabia and Russia. This has allowed the United States to be less dependent on energy imports from other countries, especially from OPEC members.
A challenge to OPEC
The views highlight the frustrations of importers such as the United States and India, which have affected oil prices for more than five decades.
It will also be the first time that China, the world‘s second largest oil consumer and largest importer, will participate in a coordinated statement with the United States.
OPEC+ members did not immediately respond officially. The group is increasing production by 400,000 barrels per day (bpd), gradually easing the record production cuts made in 2020 when the pandemic decimated demand for the fuel.
This week, Secretary-General Mohamed Barkindo said OPEC expects additional oil supplies to begin rolling out next month. In September, Saudi Arabia’s exports rose to 6.52 million bpd, the highest since January.
An OPEC source, who spoke on condition of anonymity, said it would be surprising to see consumer countries issue stocks at lower prices rather than face supply shortages.
However, other countries have long pressed OPEC, including China and India.
“It is not that there is no supply available,” India’s Oil Minister Hardeep Singh Puri said at a conference in Dubai on Wednesday. “There are 5 million barrels of supply available per day that have not been released for any reason.”
Although OPEC+ has been increasing oil production by 400,000 bpd a month since July, the producer group still has about 3.8 million bpd in supply cuts that have yet to return to the market. In April 2020, OPEC+ cut production by more than 10 million barrels a day in response to the rapid spread of the coronavirus pandemic.
In China, AIE Out
The United States and its allies have already coordinated the release of strategic oil reserves, as in 2011, when supplies were affected by the war in OPEC member Libya. Coordination is done through the Paris-based International Energy Agency, of which the United States, Japan and several European countries are members.
However, according to a source familiar with the discussion, the United States did not request EU participation, saying Europe’s main problem has been related to rising natural gas prices.
The International Energy Agency (IEA) said on its website that these statements are not intended to interfere with prices. Both Japan and South Korea were approached by the United States, and both stated that they do not release reserves simply to cope with rising prices.
(Tim Gardner in Washington, Yang Hekyong in Seoul, Aaron Sheldrick and Yuka Obayashi in Tokyo, Chen Aizu in Singapore, Nidhi Verma in Delhi, Florence Tan and Muyu Xu in Singapore, Ahmed Ghadar in London, Stephanie Kelly and Jessica in New York Resnick Alt, Swati Varma and Kavya Guduru in Bengaluru, Alex Lawler in Abu Dhabi and Olesya Astakhova in Moscow; Editing by David Gregorio, Matthew Lewis and Jonathan Otis, translation by Flora Gomez)