Emmanuel Addeh in Abuja
The United States and other high oil-consuming nations, including China, Britain, India, Japan and South Korea, yesterday made good their threat to counter a slower-than-expected release of oil barrels by the Organisation of Petroleum Exporting Countries (OPEC) in a coordinated bid to cool rising crude prices.
OPEC+ producers have repeatedly ignored calls for more crude by the US President, Joe Biden, prompting the country to mobilise a handful of high oil consuming nations to release the commodity from their Strategic Petroleum Reserves (SPR).
Crude oil prices recently touched seven-year highs and although still some way short of levels reached between 2011 and 2014, when they broke through $100 a barrel, many consumers are feeling the pain of a dramatic increase from a year ago.
The US announcement was for a release of 50 million barrels, the equivalent of about two and a half days of the country’s demand; India would release five million barrels, while Britain would allow the voluntary release of 1.5 million barrels of oil from privately held reserves, according to a Reuters report.
The decision to collectively discharge stockpiled crude after OPEC countries rebuffed calls to significantly boost production marks a temporary diplomatic win for the US and a challenge to the grip that Saudi Arabia, Russia and other OPEC producers have on the market.
Details on the amount and timing of the release of oil from South Korea, Japan and China were not announced.
Seoul said it would decide after discussions with the United States and other allies, while the Japanese media said Tokyo would detail its plans today.
Officials said it was the first time that the United States had coordinated such a move with some of the world’s largest oil consumers. OPEC+ meets again on December 2, to discuss policy but has so far shown no indication it will change tactics.
The group has been struggling to meet existing targets under its agreement to gradually increase production by 400,000 barrels per day (bpd) each month – a pace Washington sees as too slow – and it remains worried that a resurgence of coronavirus cases could once again drive down demand.
Recent high oil prices have been caused by a sharp rebound in global demand, which slumped early in the pandemic in 2021, and analysts have said that releasing reserves may not be enough to curb further rises.
But the market largely ignored the development, with benchmark Brent crude still traded above $80 a barrel on Tuesday, up from its levels before the announcement but still well below last month’s three-year high of more than $86.
The release from the US SPR would be a combination of a loan and a sale to companies, US officials said. The 32 million barrels loan would take place over the next several months, while the administration would accelerate a sale of 18 million barrels already approved by Congress to raise funds for the budget.
“We will continue talking to international partners on this issue. The president stands ready to take additional action if needed, and is prepared to use his full authorities working in coordination with the rest of the world,” a senior US administration official told reporters.
An OPEC+ source and several market analysts said the release was not as big as the headline figure suggested. They said Britain and India were releasing modest amounts and the United States had already announced some releases, and so the additional quantity was less than expected.
But the effort by Washington to team up with major Asian economies to lower energy prices sends a warning to OPEC and other big producers that they need to address concerns about high crude prices, up more than 50 per cent so far this year.
Under a swap from U.S. reserves, oil companies taking crude must return it – or the refined product – plus interest. Swaps are typically offered when oil firms face supply disruptions, such as a pipeline outage or damage from a hurricane.
Outright sales are less common. U.S. presidents have authorized emergency sales three times, most recently in 2011 during a war in OPEC member Libya. Sales also took place during the Gulf War in 1991 and after Hurricane Katrina in 2005.
Nigeria, an OPEC member had said even if prices fall to between $50 to $60, it won’t be much of an issue, with the country’s oil benchmark for the 2021 budget being $40.
