After the OPEC+ alliance turned a deaf ear to U.S. President Biden’s repeated requests for increased oil production, the United States announced that it would jointly release strategic oil reserves with many countries to curb the rise in oil prices. However, because the release of reserves is not as strong as market expectations, and OPEC+ stated that it will re-evaluate and possibly adjust its production increase plan, the unprecedented efforts of major oil consuming countries to curb the surge in oil prices have not yet achieved the expected results, and international crude oil futures prices will not drop. Counter-rising.
Many people still remember that crude oil futures fell into negative value under the 2020 pandemic, but oil prices have now climbed to their highest value in seven years. U.S. gasoline prices hit a seven-year high this month, and the U.S. inflation rate also hit its highest level in 30 years. On November 23, local time, the White House issued a statement stating that Biden announced the release of strategic oil reserves. At the same time, other major energy consumers such as India, Japan, South Korea and the United Kingdom will also announce this move. The statement stated that although the U.S. economy has recovered strongly from the epidemic, American consumers have been affected by rising gas stations and household heating costs, and American companies have also been affected. “This is because the global economy is gradually out of the impact of the epidemic and oil supply cannot keep up. Due to the rebound in demand. President Biden is using all available tools to reduce prices and solve the problem of insufficient supply.”
The U.S. Department of Energy will use two methods to reduce 50 million barrels of oil released from the Strategic Petroleum Reserve (SPR): 18 million barrels of which are accelerating sales of pre-approved quotas, another 32 million barrels will enter the transaction in the next few months, and 32 million barrels will be covered in the next few years Crude oil enters the strategic petroleum reserve. This 32 million barrels of reserves to be “returned” prompted traders to anticipate that the balance of supply and demand will tighten in the future. In addition, the market has long expected the United States to consider releasing its strategic oil reserves. Recently, this expectation has been completely absorbed by the market.
In early November, Biden stated that the increased oil production of OPEC+ members was insufficient to meet the needs of the United States. The government is considering a series of measures including the use of strategic oil reserves. choose. Prior to this, major oil-producing countries, including Saudi Arabia, ignored Biden’s request for a substantial increase in production. Biden said at the time that he did not expect OPEC and Russia to respond to high oil prices and would discuss tools for adjusting oil prices in due course. In addition, he is dealing with other countries and can get more energy.
The US Strategic Petroleum Reserve System was established after the oil crisis in the 1970s. Historically, the United States released the largest strategic crude oil reserve of 30 million barrels, which was triggered in 2011 to offset the supply interruption caused by the war in Libya. The scale of this release of strategic reserves will set a new record, demonstrating the Biden administration’s efforts to curb high oil prices.determination.
As of now, plans for other countries to release oil reserves are being announced.
Foreign media quoted people familiar with the matter as saying that India plans to sell about 5 million barrels of oil from its strategic oil reserve. The release of reserves may be completed within a week, and India and other countries may consider further selling oil reserves later.
There are market rumors that the UK will release 1.5 million barrels of oil from its reserves. The British government stated that it will allow British companies to voluntarily release part of their oil reserves.
Japanese Prime Minister Fumio Kishida said on Wednesday that Japan will release oil reserves in a manner that does not violate the Petroleum Reserve Act, but did not disclose the scale or timing of the release, saying that the Minister of Economy, Trade and Industry Hagi Tian Koichi will announce the details later. The Nikkei Shimbun previously reported that Japan will release about 4.2 million barrels of oil reserves. As one of the world’s largest oil consumers, Japan’s daily demand is about 3.3 million barrels.
According to a report from Yonhap News Agency in Seoul on November 24, the South Korean government stated on the 23rd that South Korea will participate in the joint release of oil reserves proposed by the United States along with major oil consumers such as Japan and India. plan. The South Korean government stated that the specific release scale, time and method will be announced in the future, and it is expected that the release scale will be the same as the previous example of international cooperation between South Korea and the International Energy Agency (IEA). According to Yonhap News Agency, when the situation in Libya deteriorated in 2011, the South Korean government released 4% of the national oil reserves (3.467 million barrels) in accordance with the requirements of the IEA. According to observations, it is believed that 4% to 5% of South Korea’s total reserves will also be released this time.
How effective can oil-consuming countries unite to oppose OPEC’s market control actions? At least for now, the market is not optimistic.
Goldman Sachs compares the release of strategic oil reserves to “a drop of water in the ocean.” Goldman Sachs analyst Damien Courvalin believes that the scale of crude oil reserves released by various countries is gradually announced. The United States will release 50 million barrels, South Korea, Japan, India, and the United Kingdom will release about 30 million barrels. The total scale of 70-80 million barrels of oil is lower than The market price is over 100 million barrels. According to its oil pricing model, the impact of this part of the released oil on oil prices is less than US$2/barrel, which is significantly lower than the drop of nearly US$8/barrel since the end of October. Courvalin reiterated that releasing crude oil reserves is not the solution to the problem of high oil prices, and high oil prices areOil-producing countries are necessary to increase the slow supply problem.
OANDA senior market analyst Edward Moya said that the intensity of this coordinated action is less than expected, and there is no doubt that OPEC+ will respond with production cuts. If OPEC+ plans to reduce production, no one will be surprised.
The Royal Bank of Canada believes that the United States is eager to hold down gasoline and diesel prices before the holidays, and releasing oil reserves is also part of the plan to deal with inflationary pressures. The OPEC+ meeting next week will be the key to determining the role of countries in releasing oil reserves. It is expected that OPEC+ will most likely adhere to the existing production increase plan next week, but Saudi Arabia may try to reduce the increase in production because of the recurrence of the new crown epidemic in Europe and related restrictions, resulting in reduced demand.
Manchin, Chairman of the Energy and Natural Resources Committee of the US Senate, said that Biden’s decision to release 50 million barrels of oil from the Strategic Petroleum Reserve is just a stopgap measure, and it really needs to be done. The thing is to increase domestic production.