An OPEC panel said on Wednesday (Nov. 25) that the United States and several other countries’ decisions to release oil from their strategic petroleum reserves (SPR) could increase oversupply by 1.1 million barrels a day. The bloc which dominates the broader OPEC+ alliance, added that, as a result, the global oil surplus may reach 2.3 million barrels per day in January 2022 and 3.7 million barrels per day in February.
On Tuesday (Nov. 23), United States President Joe Biden announced the world’s largest economy will release 50 million barrels from its SPR. Of that total, 32 million barrels will be an exchange over the next several months, while 18 million barrels will be an acceleration of a previously authorized sale. The U.S. is responsible for about half of the world’s strategic petroleum reserves. China, India, Japan, the Republic of Korea and the United Kingdom announced similar moves- an unprecedented, coordinated attempt by the world’s largest oil consuming countries to cool runaway fuel prices.
India said it would release 5 million barrels, Britain 1.5 million barrels while Japan “a few hundred thousand kilolitres” according to industry minister Koichi Hagiuda.
Oil prices have jumped more than 50% year-to-date, hitting multi-year highs with consumers feeling the pain.
Analysts have said that the effort by Washington to team up with major Asian economies to release reserves may not be enough to curb further rises.
“A new and unchartered type of price war is brewing in the oil market,” Louise Dickson, senior oil markets analyst at Rystad Energy, said on Wednesday in a research note.
Much of the released crude will need to be returned by the refiners who buy it, leaving traders anticipating tighter balances, according to Bloomberg.
Meanwhile, reports emerged that OPEC+, which includes Saudi Arabia and other U.S. allies in the Gulf, as well as Russia, are considering suspending their agreement on a gradual increase in oil production, due to the coordinated SPR releases by the six countries.
The group is exploring the possibility of taking that step, the Wall Street Journal reported on Wednesday (Nov. 24) citing sources briefed on the matter.
However, some OPEC members, such as the United Arab Emirates and Kuwait, are reportedly currently opposing a temporary halt to the alliance’s oil output deal, despite the decision by the United States, Japan, India and others to release emergency oil stocks.
The accord between OPEC and its allies is centered on adding about 400,000 barrels a day of crude each month, seeking to return production to pre-Covid-19 levels by next year, while also providing flexibility in case of additional oil market instability.
All eyes are now on the OPEC+, who are due to meet on Dec. 2 to discuss oil demand and supply.
Elsewhere, the Energy Information Administration, the world’s leading energy authority reported that crude stockpiles rose by 1.017 million barrels last week, versus analysts’ expectations for a draw of 481,000 barrels.
Paris-based IEA, a bloc of 30 industrialised energy consuming nations, is not involved with the U.S.-led pledge to release oil from strategic reserves because the IEA’s rules state that it is not meant to intervene to affect prices.