Image source,Getty Images
The key to stabilizing oil prices is also to increase production in oil-producing countries.
The United States, China, Japan, India, the United Kingdom and other major oil-consuming countries are considering coordinating the release of some of their strategic oil reserves, with a view to cooling oil prices and stabilizing their domestic inflation trends.
The United States said it would release 50 million barrels of oil from its strategic reserves in an attempt to reduce soaring domestic energy and gasoline prices.
Data show that the current strategic crude oil reserve of the United States is slightly more than 600 million barrels, while the global average daily oil demand is about 100 million barrels.
The US Department of Energy stated that the 50 million barrels of crude oil will be put on the market as early as mid-to-late December 2021, of which 18 million barrels have been approved by Congress and will be sold directly, and the other 32 million barrels are for short-term exchange. It will be agreed in 2022 when the oil price stabilizes. The strategic oil reserve will be returned from 2010 to 2024.
Some analysts believe that the US government’s measures are not strong enough and have limited impact on the current market. The key lies in whether the major oil-producing countries agree to accelerate production increase and release production capacity.
Background reason
In the second half of 2021, as the new crown epidemic eases and countries resume work and production, global demand has risen sharply, and various energy prices have soared.
Crude oil prices have reached their highest point in seven years.
Oil prices have pushed up gasoline prices and living expenses necessary for the economy and people’s livelihood in many countries, and have spread to all aspects of the economy, pushing up inflation.
The White House pointed out that American consumers have felt the impact of rising natural gas prices in gas stations and household heating bills, as have American companies, because oil supply has not kept up with demand.
The White House said that this is why US President Biden is using all the tools at his disposal to reduce prices and solve supply shortages.
Supply issues
Analysts pointed out that the skyrocketing oil prices in the United States pushed up inflation and made consumers dissatisfied with the economic situation. The Biden administration will have to take measures to stabilize oil prices before the midterm elections next year.
In order to solve the supply problem, Biden has also repeatedly asked the OPEC Group of Petroleum Producing Countries to increase production more quickly.
However, OPEC insisted on increasing production gradually in accordance with the original production increase agreement reached in July 2021.
OPEC said that it is worried that the resurgence of the new crown virus epidemic may reduce oil demand again, just as it happened during the peak of the epidemic.
Coordinate actions with China and others
According to a Reuters report, Chinese officials said on November 18 that the release of crude oil reserves is underway, although it declined to comment on the United States‘ request that major oil-consuming countries consider coordinating the release of oil reserves.
At the regular press conference of the Ministry of Foreign Affairs of China on November 24, a reporter asked. The White House said that the United States will release its crude oil reserves with five countries including China. Can China confirm?
Chinese spokesperson Zhao Lijian only replied that China “is willing to maintain communication and strengthen cooperation with all relevant parties on maintaining market balance and long-term stability, and jointly respond to challenges.”
He also said that China will put in the national reserve crude oil according to “its own actual and needs arrangements.”
The United States and China together consume nearly 35 million barrels of oil a day, which is more than one-third of global demand. Although the United States is one of the world‘s largest oil producers, it is still the world‘s second largest crude oil importer after China.
As part of the coordinated effort, the British government will also allow companies to voluntarily release 1.5 million barrels of oil from privately held reserves.
It stated that the action will support the recovery of the global economy. There are also comments that any benefit to British drivers may be limited.
India will release 5 million barrels; South Korea and Japan will also announce the number and timing of their release in due course.
“Not enough strength”
Image source,Getty Images
Officials said this is the first time the United States has coordinated this initiative with some of the world‘s largest oil consumers. But analysts question whether this will have too much impact.
Caroline Bain, chief commodity economist at Capital Economics, said that major consumer countries such as the United States have not done enough to reduce prices in a meaningful way. Moreover, if this prompts oil-producing countries such as OPEC and Russia to slow down the pace of production increase, it may even backfire.
However, the analysis also pointed out that Washington’s efforts to reduce energy prices in cooperation with other major economies have warned OPEC and other large producers that they need to address their concerns about high oil prices.
market prediction
OPEC and related countries, including major oil-producing countries such as Saudi Arabia and Russia, have repeatedly rejected requests for more oil exploration at their monthly meetings, which has caused frustration in the United States.
A senior U.S. government official said that he will continue to negotiate with international partners on this issue.
Deutsche Commerzbank analyst Carsten Frisch said that President Biden is ready to take more actions when necessary and fully coordinate with the rest of the world. This move may cause OPEC to reconsider its strategy and agree to increase production.
Bain believes that the current actions of the US government seem to have considerable symbolic significance and political motives.
Bain also said that if OPEC and other oil-producing countries continue to extract more oil, the market will enter a surplus in the first quarter of 2022, which will naturally lower oil prices.