The US is to release 50 million barrels of crude oil from its strategic reserves in concert with China, Japan, India, South Korea and the UK — an unprecedented, coordinated attempt by the world’s largest oil consumers to tame prices that risks a backlash by OPEC+.
However, the oil market was initially underwhelmed by the details of the package — as much of the oil would need to be returned to the stockpile by the refiners that buy it, and international contributions were smaller than many expected.
After an initial dip in prices, oil gained more than US$1 a barrel.
The response of OPEC+ would be key to the eventual success or failure of the plan.
Officials from the Saudi Arabia-led group, which is to meet to set policy next week, have warned that they are likely to respond by canceling plans to boost their own production, negating the addition of stockpiled oil onto the market.
At stake is the price of the world’s most important commodity, as US President Joe Biden contends with the strongest inflation in more than a decade, a surge that is hitting his approval ratings and risks undermining the US’ post-COVID-19 economic recovery.
The White House on Tuesday said that it had other tools at its disposal to bring down energy prices, if needed.
Thirty-two million barrels would be issued from the US Strategic Petroleum Reserve as an exchange over the next several months, while 18 million barrels would come from an accelerated release from previously authorized sales, the White House said.
It represents one of the biggest drawdowns ever from the reserve, surpassing US interventions amid Libyan unrest in 2011 and Operation Desert Storm in 1991.
A senior Biden administration official told reporters that barrels would begin moving as soon as in the middle to late next month.
Biden’s decision to collectively discharge stockpiled crude after OPEC+ countries rebuffed calls to significantly boost production marks a diplomatic win for the US and a challenge to the grip that Saudi Arabia, Russia and other OPEC+ producers have on the market.
“The market focus has shifted from the release to how OPEC+ will respond to what the White House is calling a ‘message to the Saudis,’” said Bob McNally, president of consultancy Rapidan Energy Group and former White House official under former US president George W. Bush. “If it comes to a test of wills and capabilities between a handful of strategic oil reserve holders led by the US and OPEC+, the market would probably bet on the latter prevailing.”
Under the plan, the US would conduct the exchanges over several months, with oil companies taking possession of the crude now and then returning supplies to the reserve when prices have eased.
Senior administration officials said the two-pronged oil release plan, the result of months of discussion and diplomacy, is tailored to the current market conditions, with oil prices expected to dip in coming months.
The plan is one of the largest-ever releases from US reserves, eclipsing past interventions that saw the US putting 30 million barrels onto the world market.
It also surpasses the rapid drawdown of 33.75 million barrels that was ordered in 1991, amid Operation Desert Storm.
Asian countries joined the US in releasing oil, sending a political signal of support, but one with little oil market value as the quantities involved were small, disappointing traders.
India said it would release 5 million barrels.
China did not disclose its contribution, but one Western official familiar with the matter said it would be relatively small, in the range of 7 million to 15 million barrels.
South Korea said it would decide on details such as volume and timing after discussing with partner countries, but indicated that it could be about 3.5 million barrels.
Japan indicated that it would release 5 million barrels or less.
The UK’s contribution is expected to be even smaller, the same official said.
“This is a hugely political move, and the Asian countries are adding only small, largely symbolic amounts,” said Amrita Sen, cofounder of consultancy Energy Aspects Ltd in London.
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