Will the world's major economies unite against OPEC?
News_Code: 355542 11/20/2021 12:21:44 PM
Will the world's major economies unite against OPEC?
In some of the world's largest economies, governments have said they are considering extracting oil from their strategic reserves in the wake of an unprecedented US call for concerted action to control global energy prices.
 

With the global economy recovering from the Covid 19 pandemic, Washington is angry that OPEC and its allies, including Russia, have refused to accept US demands for faster production growth. Rising prices for gasoline and other fuels in the United States have put Biden under political pressure ahead of next year's midterm elections. A Reuters poll in October found that 67 percent of American adults view inflation as a major concern.

OPEC Plus ministers plan to meet on December 2nd to review production policy. The group is taking a gradual approach to increasing production and sees the economic recovery as more fragile than justifying oversupply.

Oil prices fell about 4 percent to a six-week lowest record following the announcement of a US request and China's decision to release oil from its reserves, but partially offset the decline on Thursday. Oil prices have retreated from their recent record high in anticipation of increased global supply.

"The market is still anxious because they are in a defensive position to withdraw reserves," said Philip Flynn, Price Futures chief analyst at Chicago.

China's state reserves told Reuters it was working to free up crude oil reserves but declined to comment on the US request.

The United States has the largest strategic reserves of more than 600 million barrels. These reserves were created in the 1970s following the Arab oil embargo to ensure that the country would have enough oil to supply in an emergency.

In recent years, the shale oil boom has made US production rivals Saudi Arabia and Russia, and the country has become less dependent on energy imports from other countries, especially OPEC members.

A challenge for OPEC

Recent observations by major economies reflect the anger of importers such as the United States and India over OPEC, which has been driving up oil prices for more than five decades.

It will also be the first time that China, the world's second-largest consumer and largest oil importer, will participate in a concerted effort with the United States to release strategic reserves to the market.

There was no immediate reaction from OPEC Plus members. The group is engaged in a monthly increase in production of 400,000 barrels per day and will gradually ease the supply limit imposed in 2020 at the height of the Corona crisis.

OPEC Secretary-General Mohammed Barkindo said this week that OPEC expects oil surpluses to begin in December. In September, Saudi Arabia's exports rose to 6.52 million barrels per day, the highest level since January.

An informed source in OPEC, who did not want to be named, said: "It is surprising to see that consuming countries extract oil from reserves to lower prices, not to compensate for supply shortages."

However, several major energy consumers in the world have pushed OPEC to increase supply. China extracted oil from its reserves in September to stabilize prices. India has been volatile for months, cutting its purchases from Saudi Arabia dramatically in the spring due to rising costs.

Although OPEC Plus has added 400,000 barrels per day to production since July, it still has limited production to about 3.8 million barrels per day. In April 2020, OPEC Plus agreed to limit production to about 10 million barrels per day in response to demand collapse following the outbreak of the Coronavirus.

The arrival of China and the departure of the International Energy Agency

The United States and its allies have already made coordinated withdrawals of reserves, such as in 2011 after the war in Libya curtailed supply. The coordination was done through the International Energy Agency, based in Paris, including the United States, Japan, and several European countries.

Informed sources said that the United States had not asked the European Union to participate in this action. Europe's main problem right now is high natural gas prices.

According to Reuters, the International Energy Agency announced that the withdrawal of reserves was not intended for price intervention. Japan and South Korea, in contact with the United States, have said they will not release their oil reserves to counter rising prices.