US discusses joint release of oil reserves with China, points against OPEC +

The governments of some of the world’s largest economies are studying the release of oil from their strategic reserves, following an unusual request from Washington for a coordinated move to cool energy prices ahead of a meeting of major oil producers.

The Joe Biden administration has asked a wide range of countries, including China for the first time, to consider releasing crude oil reserves, the White House reported Thursday.

Other large 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 frustrated that OPEC + – a group made up of the Organization of the Petroleum Exporting Countries and allies like Russia – have rejected its requests to speed up the supply of additional oil.

OPEC nations, for their part, have said that world economies remain too fragile to justify a rapid increase in supply.

The market was crashing on Friday after Austria announced it would re-impose a total lockdown amid rising coronavirus cases and Germany – Europe’s largest economy – could soon follow suit.

With rising gas prices and other costs, Democrat Biden also faces political pressure heading into next year’s midterm legislative elections. A Reuters poll in October showed that 67% of American adults agree that inflation is a very big concern.

Members of Biden’s national security team discussed the need to meet demand for fuel, White House spokeswoman Jen Psaki said Thursday. “That is an ongoing conversation that we are having with a number of partners.“, he pointed.

OPEC + is scheduled to meet on December 2. The group has been increasing production by 400,000 barrels per day (bpd) per month, gradually undoing record production cuts made in 2020 when the pandemic dissipated demand for fuel.

“It is not that supplies are not availableHardeep Singh Puri, India’s oil minister, told a conference in Dubai on Wednesday. “There are 5 million barrels a day of supplies available that have not been released for any reason”.

Although OPEC + has been increasing pumping by 400,000 bpd per month since July, it still has about 3.8 million bpd in supply cuts that it has yet to return to the market. Some members of the group have not been able to meet production targets due to years of underinvestment.

“Half of the (OPEC +) members cannot meet their quotas due to their own underinvestment“Goldman Sachs analysts said in a note on Friday.

China’s state reserves office told Reuters it is working on releasing reserves, but did not comment on the US request. It would be the first time that China – the world’s second largest consumer of crude oil and the largest importer – has participated in a coordinated liberalization with the United States.

Beijing held its first public auction of oil reserves in September. Consulting firm Energy Aspects said in a note to clients that Beijing is expected to release another 10 to 15 million barrels of crude from its reserves in eastern Zhoushan in its next round of auctions.

“Any oil released from the Chinese SPR (Strategic Petroleum Reserve) has to be refilled within 90 days ”, Indian. “The market should focus on where these countries will find the crude to fill these deposits given how low the reserves are”.

The United States has the largest strategic reserve, with more than 600 million barrels. Its SPR was created in the 1970s, after the Arab oil embargo, to ensure that the country had an adequate supply to face an emergency.

In recent years, the shale oil boom has seen US production rival that of Saudi Arabia and Russia. This has allowed the United States to be less dependent on energy imports from other nations, especially from OPEC members.