US announces release of part of its oil reserves

In a concerted effort to reduce oil prices, the White House and other major oil consumers will release some of their strategic reserves during December
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The US Department of Energy has announced the release of 50 million barrels from the country's Strategic Petroleum Reserve. With this move, the Biden Administration aims to address the supply shortages faced around the world, and thereby reduce high prices for Americans. 

The US reserves are located in underground storage facilities in Texas and Louisiana, and constitute the largest emergency oil supplies in the world. The stockpiles hold about 600 million barrels of crude oil.    

The withdrawal of part of these reserves represents the largest release of oil in US history, and will be carried out in coordination with other oil-consuming countries. Thus, from December onwards, the US government will release 32 million barrels, which it hopes to recover over the next few years, in addition to the 18 million barrels already authorised by the US Congress.

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"The president is prepared to take additional measures if necessary, and is determined to use all of his powers, working in cooperation with the rest of the world, to maintain adequate supplies now that we are beginning to emerge from the epidemic," the US administration said.  

In cooperation with the US, the main consuming countries that have joined these measures are China, India, Japan, South Korea and Britain. Thus, a statement from the Indian government - the world's third largest oil-consuming country - expressed its "concern that oil-producing countries are artificially adjusting supply below demand levels, leading to higher prices". 

Accordingly, India has pledged to release 5 million barrels, while Japan has set a ceiling of another 5 million barrels, the UK will contribute no more than 1.5 million barrels - in private sector contributions - and South Korea is still finalising its contribution.

OPEP

The US has already stated that it considers that supplies are being deliberately withheld, but repeatedly faced refusal by OPEC+ (Organisation of Petroleum Exporting Countries and its allies) member countries to increase supplies. The producer group defended its position by warning that demand is still compromised by the evolution of the pandemic, and that, for the time being, global oil supply must be kept in check.   

What happens next?

In light of these actions, the producer organisation might perceive this situation as a "hostile move" by importing powers. OPEC+ countries have argued that this is an unwanted contribution to supply growth, and that the move jeopardises the market balance that has been pursued since the price collapse in April 2020.

OPEP

Analysts now warn that these measures may have the opposite of the expected consequences. While strategic reserves are of very limited importance in the global oil market - so their impact on the price will be modest in terms of both duration and quantity - OPEC+ may see this as a threat and propose a strategy that "punishes" consumers. In this scenario, oil prices could soar, giving producer states more power than before.   

"There is growing evidence to suggest that falling oil prices and other gasoline input costs are not translating into lower pump prices," US administration officials have already argued. This has already seen the price of crude oil rise by more than 2%. And although, pending the White House announcement, the West Texas Intermediate barrel fell by 1.8% to 75 dollars per barrel, the price has already reached 77.7 dollars, a figure higher than a few days ago.