Some of the world’s biggest crude oil buyers yesterday said they are looking at tapping strategic petroleum reserves (SPR) after several sources told Reuters the US had requested a coordinated move to cool global energy prices.
Oil prices are down about 4 percent since Wednesday, as the shock treatment seemed to take effect.
The administration of US President Joe Biden asked big oil buyers, such as China, India and Japan, to consider releasing crude stockpiles, several people familiar with the requests said.
Photo: Reuters
The unusual move comes as Biden, facing midterm elections next year, fends off political pressure over rising pump prices and other consumer costs driven by a rebound in economic activity from lows plumbed early in the COVID-19 pandemic.
“Brent is now under 80 bucks,” said John Driscoll, managing director at consultancy JTD Energy in Singapore. “It’s having a short-term effect on oil markets, it’s probably good for at least a 5 percent correction.”
Brent was trading at US$79.90 at about 6:44am GMT.
The US move also reflects frustration with OPEC and its allies who have rebuffed repeated requests from Washington to speed up production increases.
Biden and top aides have discussed the possibility of a coordinated release of stockpiled oil with close allies, including Japan, South Korea and India, as well as with China, over the past several weeks, sources told Reuters earlier.
The Chinese State Reserve Bureau said it was working on a release of crude oil reserves, although it declined to comment on the US’ request.
A Japanese industry ministry official said the US had requested Tokyo’s cooperation in dealing with higher oil prices, but he could not confirm whether the request included coordinated releases of stockpiles. By law, Japan cannot use reserve releases to lower prices, the official said.
A South Korean official confirmed the US had asked Seoul to release some oil reserves.
“We are thoroughly reviewing the US request, however, we do not release oil reserve because of rising oil prices. We could release oil reserve in case of supply imbalance, but not to respond to rising oil prices,” the official said.
The US and its allies have coordinated strategic petroleum reserve releases before, for example in 2011, during a war in OPEC member Libya.
However, the current proposal represents an unprecedented challenge to OPEC, the cartel that has influenced oil prices for more than five decades, because it involves China, the world’s biggest importer of crude.
The US SPR was set up in the 1970s after the Arab oil embargo to ensure the US has adequate supply to weather an emergency.
OPEC and other producers, including Russia, known collectively as OPEC+, have been adding about 400,000 barrels per day to the market on a monthly basis, but have resisted Biden’s calls for more rapid increases, arguing the rebound in demand could be fragile.
The Biden administration had not addressed the “root cause” of high prices, which was limited domestic US supply, said Tilak Doshi, managing director at Doshi Consulting in Singapore.
He cited the cancelation of the Keystone XL pipeline to bring oil from Canada’s Western tar sands to US refiners, and bans on drilling on Federal lands.
The Biden administration had been “doing everything to stymie domestic oil and gas producers,” Doshi said, adding that Washington’s call for a coordinated response from allies plus China was “a first I believe.”
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