US, China and others point to OPEC with possible release of oil reserves

The governments of some of the world’s largest economies said they were considering releasing oil from their strategic reserves, following an unusual request from USA for a coordinated measure to cool energy prices and before a meeting of the main producing countries.

The government of the president Joe Biden has asked large oil buyers such as India and Japan, as well as China for the first time, to consider releasing crude reserves, several people familiar with the requests said.

As the world economy recovers from the pandemic, Washington is frustrated by the fact that the producers of the OPEC +, the Organization of the Petroleum Exporting Countries and allies such as Russia, have rejected his requests to increase the supply of oil.

With rising gasoline prices and other costs, Biden also faces political pressure ahead of next year’s legislative elections.

OPEC + is scheduled to meet on December 2. The group has taken a slower approach to increasing production as it considers the economic recovery too fragile to justify increased supply.

Oil prices fell about 4% to a six-week low following Reuters information on the US request and China’s decision to release some crude, before regaining some ground later on Thursday.

“The market is going to remain nervous, because it is on guard for a release,” said Phil Flynn, principal analyst at Price Futures Group in Chicago.

The Chinese state reserves office said it was working on a crude reserve release, but declined to comment on the US request.

The United States has the largest strategic reserve, with more than 600 million barrels.

A challenge for OPEC

By involving China for the first time, this proposal poses an unprecedented challenge to OPEC, the cartel that has influenced oil prices for more than five decades. China is the world’s second largest consumer of oil and the largest importer.

Members of OPEC + have not reacted immediately. The group has been increasing production by 400,000 barrels a day a month, gradually undoing record production cuts of 2020 when the pandemic plunged demand for fuel.

This week, Secretary General Mohammad Barkindo said that OPEC expects a surplus oil supply to begin to build up next month. In September, Saudi Arabia’s exports rose to 6.52 million barrels a day, the highest since January.

An OPEC source who asked not to be named said it would be surprising to see consumer countries release stocks to lower prices, rather than cope with a supply shortage.

However, several large global energy consumers have pressured OPEC to increase supply.

China decided to release reserves in September to try to stabilize prices. India has been expressing frustration for months, and in the spring it slashed its purchases from Saudi Arabia due to rising costs.

“It is not that supplies are not available,” Hardeep Singh Puri, Indian Minister of Petroleum, told a conference in Dubai on Wednesday. “There are five million barrels a day of supply available that have not been released for whatever reason.”