Asia appears to be releasing oil reserves at US request

A crude oil tanker was spotted in Qingdao Port, Shandong Province, China, on April 21, 2019. REUTERS / Jason Lee / File Photo

  • Oil prices fell by about 4% on Thursday
  • Biden wants coordinated release of oil stocks – sources
  • China says it intends to release some reserves
  • Japan, South Korea say they can not utilize reserves to ease prices

TOKYO, November 18 (Reuters) – The world’s largest economies said on Thursday that they were investigating the release of oil from their strategic reserves, following a rare request from the United States for a coordinated move to cool global energy prices.

The US move reflects frustration with the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, which has rejected Washington’s requests to accelerate oil production as the world economy recovers from the pandemic.

It also comes as U.S. President Joe Biden averted political pressure ahead of next year’s midterm elections due to rising gasoline prices and other costs driven by the recovery.

The Biden administration has asked major oil buyers such as India and Japan – as well as China for the first time – to consider releasing stocks of crude oil, several people familiar with the requests told Reuters.

Oil prices fell about 4% to a low of six weeks after Reuters reported on the US request and China’s decision to release some crude oil before regaining ground later Thursday.

“Brent is now under $ 80,” said John Driscoll, CEO of consulting firm JTD Energy in Singapore. “It has a short-term effect on the oil markets. It’s probably good for at least a 5% correction.”

Chinese state reserve bureau told Reuters it was working on a release of its crude oil reserves, although it declined to comment on the U.S. request.

A Japanese Ministry of Industry official said Washington had requested Tokyo’s cooperation in dealing with higher oil prices, but he could not confirm whether the request included a coordinated release of reserves. By law, Japan cannot release reserves to lower prices, the official said.

Futures on Crude Oil in the US and Brent Fall After US Government Requests Some Large Oil Buyers to Sell Reserves

UHIDE CHALLENGE

A South Korean official confirmed that the United States had asked Seoul to release some oil reserves.

“We are reviewing the US request thoroughly, but we are not releasing oil reserves due to rising oil prices. We could release oil reserves in case of supply imbalance, but not to respond to rising oil prices,” the official said.

The United States and its allies have coordinated strategic releases of oil reserves before, as in 2011, when supplies were hit by a war in OPEC member Libya.

But because the current proposal involves China for the first time, it represents an unprecedented challenge for OPEC, the cartel that has been affecting oil prices for over five decades.

That US SPR was established in the 1970s following the Arab oil embargo to ensure the United States has sufficient supplies to cope with an emergency.

If China makes its release in coordination with other nations, it would be the first time, said Sengyick Tee, analyst at Beijing-based consulting firm SIA Energy.

China rolled out its first public auction of state crude oil reserves to a select group of domestic refineries in September with the aim of stabilizing energy prices. Read more

Biden and top aides have been discussing the possibility of a coordinated release of stored oil with close allies, including Japan, South Korea and India, as well as with China, over the past few weeks, sources told Reuters earlier.

US crude oil in strategic oil reserves

OPEC and other major producers, including Russia, known collectively as OPEC +, have gradually phased out record production cuts in 2020 by increasing production by 400,000 barrels per day per month.

But they have resisted Biden’s calls for faster increases, arguing that the recovery in crude oil demand could be fragile, and there were already signs of a surplus building in 2022. read more

The Biden administration had not addressed the “root cause” of high prices, which were limited domestic supply in the United States, said Tilak Doshi, CEO of Doshi Consulting in Singapore.

He mentioned the cancellation of the Keystone XL pipeline to bring oil from Canada’s western tar sands to U.S. refineries and a ban on drilling on federal lands.

The Biden administration had “done everything possible to prevent domestic oil and gas producers,” Doshi said, adding that he believed Washington’s call for a coordinated response from allies plus China was the first.

Reporting by Yang Heekyong in Seoul, Aaron Sheldrick and Yuka Obayashi in Tokyo, Chen Aizhu in Singapore, Florence Tan in Singapore and Muyu Xu in Beijing; Edited by Stephen Coates and David Clarke

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