U.S. set to unveil emergency oil release in bid to fight high prices, Energy News, ET EnergyWorld

Washington: The United States is expected to announce a loan of crude oil from its emergency supplies on Tuesday as part of a plan negotiated with major Asian energy consumers to lower energy prices, a Biden administration source familiar with the situation said.

The move is set to curb soaring energy prices after the OPEC producer group and its allies rejected repeated calls from Washington and other consumer nations to pump faster to meet rising demand.

U.S. President Joe Biden faces low approval ratings in the recovery from the coronavirus pandemic due to high prices for gasoline and other consumer goods, putting him and his Democrats at risk ahead of next year’s congressional elections.

A so-called “swap” of the US Strategic Petroleum Reserve (SPR) will be announced on Tuesday in a step coordinated with several countries, the source said. The source did not indicate how much oil would be released from the stocks.

Biden has already asked China, India, South Korea and Japan to jointly release strategic oil reserves with the US. Japanese and Indian officials are working on ways to do this, Reuters reported.

Washington’s unprecedented efforts to partner with major Asian economies to lower energy prices are intended to warn major producers not to pump more oil to allay concerns about high fuel prices in powerful economies.

OPEC +, which includes the Organization of Petroleum Exporting Countries (OPEC) and allies including Russia, plans to meet on December 2nd to discuss production policy.

The impact of a coordinated oil release would depend on the time frame and volume, but a release of more than 60 million barrels in about 30 days would be viewed by the market as “very negative for pricing,” said Vivek, an analyst with the Commonwealth Bank of Australia Dhar .

“This situation comes at a time when this market is changing and global oil supplies are increasing. So this could cause prices to fall more than you think, “he said, citing new coronavirus lockdowns in Europe.

OIL OFF HIGH

The United States has historically worked with the Paris-based International Energy Agency (IEA), a block of 30 energy-consuming industrialized nations, when global supply problems require coordinated release of stocks.

Japan and South Korea are IEA members, while China and India are only associate members.

As part of an SPR swap, oil companies take crude oil from their inventory, but have to return it – or the refined product – plus interest. Swaps are typically offered when oil companies are faced with a supply disruption such as a pipeline failure or damage from a hurricane.

Direct sales are less common.

US presidents have approved emergency sales of the SPR three times, most recently in 2011 during a war in OPEC member Libya. Sales also took place during the 1991 Gulf War and after Hurricane Katrina in 2005.

The current high prices were not caused by an interruption in supply, but rather a rebound in global energy demand from the lows reached during the lockdown in the early days of the coronavirus crisis.

OPEC + added roughly 400,000 barrels per day to the market monthly to meet rising demand, but has defied Biden’s calls for faster increases, arguing that the demand recovery could be fragile.

The threat of a coordinated release of stored oil to market, along with new coronavirus-related lockdowns in Europe, has recently taken the wind out of the sails of the crude oil rally. Brent crude was last traded at around $ 79.30 a barrel, down more than $ 7 from a late October high. [O/R]

Citigroup analysts estimated that a combined release of oil from the United States and other countries could be “on the order of 100 to 120 million barrels or more”.

However, a source familiar with the discussions said that input from China and other countries is still very much in the air and that nations like India and South Korea would likely only contribute a small amount of barrels.

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