High energy prices have prompted the Biden administration to announce a crude oil loan from the U.S. emergency stockpile, in an attempt to curve the phenomenon ahead of the Christmas season. The government had requested OPEC producers to speed up production to match the increasing demand.
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High Energy Prices
As reported by Reuters, “A so-called ‘swap’ from the U.S. Strategic Petroleum Reserve (SPR) will be announced on Tuesday in a move coordinated with several countries,” while the amount of oil to be released from the stockpiles is yet to be determined.
Although the situation remained unclear and a White House spokeswoman had initially said the government was weighing several options, the U.S. is pondering the release of more than 50 million barrels over time, according to anonymous sources.
Japan and India officials said they are working on the release of strategic oil stockpiles, while China and South Korea also received the request from Washington. The move would be an unprecedented effort by major oil consumers to control prices.
The plan was also politically inked as Joe Biden is down on the approval ratings since inflation is affecting gasoline and consumer products –while the economy recovers from the pandemic recession. The Democratic party is looking at the situation closely ahead of the congressional elections next year.
Price Impact
Amid high energy prices, Commonwealth Bank of Australia analyst Vivek Dhar says that the impact of a synchronized oil release would hinge on the timeframe and quantity. However, releasing more than about 60 million barrels in 30 days could be deemed as “very negative for pricing.”
With new Covid lockdowns in Europe taking place, "This situation is coming at a time when this market was shifting and global oil stockpiles are rising. So this could see prices fall more steeply than you think," he said.
Analysts at Citigroup estimate that the combined oil release could be “on the order of 100-120 million bbls or higher.”
Other sources familiar with the matter and quoted by Reuters say that the commitment of China and that of other economies is yet to be confirmed, and both India and South Korea –the ones already working on the release– would contribute with a small number of barrels.
