How and why the US and other powers plan to lower the price of a barrel of oil

The United States announced this week that it will release up to 50 million barrels of oil from its “strategic reserves” —Goldman Sachs estimated that this would reach 70-80 million. The objective: to lower the price of a barrel, which has had a continuous increase due to the production strategies of the Organization of the Petroleum Exporting Countries (OPEC) and allies, such as Russia.

The price of a barrel of North Sea Brent for January delivery fell 0.07% to $ 82.25. Meanwhile, in New York, a barrel of WTI (which is the benchmark crude for Ecuador) for the same delivery fell 0.14% to $ 78.39, according to data on Wednesday.

On other occasions, several countries had asked OPEC + (OPEC and allies) to increase supply to accelerate the recovery with better prices, but this group has maintained restrictions and released less than expected during this year, increasing production periodically and in a timely manner. little by little.

In this scenario, the United States took the initiative and also convinced allied countries, such as the United Kingdom, Japan and South Korea, as well as China and India – two of those that cause the most demand – to do something similar and play part of your reserves to increase the offer.

Galo Salcedo, Ph.D. in Geology from the University of Kansas and petroleum expert, says that countries that have significant oil reserves use them when there is international shortage or prices are high.

“By offering more oil to the market, prices fall due to the law of supply and demand. If there is abundant production and little demand or buyers, the price falls. If the production is not enough for the demand, the price goes up ”, explains Salcedo.

Although after the announcement there have been no major changes, the results will be seen in the medium and long term. In addition to promoting more than one objective.

This is mentioned by Fernando Santos, former Minister of Energy of Ecuador, who adds that it is the “first time in history” that so many countries could send crude to the market to lower prices.

“This attitude has two messages. First: a political one, because the American and European citizen are very upset about the high prices … And secondly: the industrialized and larger countries are committed to climate change and what they want is to keep the price low to discourage more production and exploration … The immediate scope is to freeze prices to benefit the consumer, and another in the long term is to discourage investment in oil, ”says Santos.

The results of the measure would be observed from January or a few months later. Also because OPEC + is increasingly releasing more oil to the market, it tends to have monthly increases of 400,000 barrels per day, of the six million it has dammed since last August.

Regarding whether the measure is going to affect countries that are highly dependent on oil, such as Ecuador, Santos indicates that it will not be very significant, because the fall will be very gradual and, for example, Ecuadorian crude has a premium, because it is replacing oil. Venezuelan crude, which is under sanctions and does not reach the US market.

The strategic reserves of crude oil in the United States are estimated at 620 million barrels, stored in a system of caves dug in saline rock that go from Baton Rouge (Louisiana) to Freeport (Texas), according to BBC. And its objective is precisely to be used when the ups and downs of the world oil industry put the country in trouble with serious interruptions or when for other reasons, such as natural disasters, it is necessary to produce more locally.

Something important to take into account in the main economy, which still has oil as its main source of energy, even to cover the need for heating – winter is coming. In addition, the price of gasoline has risen 60% in the last year in the country.

Now we will have to wait to see how OPEC + reacts to the challenge – they will meet on December 2 – considering that they also need crude locally and for their sales abroad for their economic recovery.

However, some of the biggest producers have warned that a price war would not benefit anyone.

OPEC + already foresees that in December there will be a surplus barrels per day, which will continue to rise, more if the countries mentioned at the beginning release more oil from their reserves to the market. (I)