Jarrett Renshaw and Timothy Gardner

WASHINGTON, (Reuters) – President Joe Biden’s unprecedented decision to pull oil from strategic reserves and coordinate with countries including China is a bold bet on the possibility that finding common ground will help lower fuel prices for Americans of middle-class status.

This move was announced Tuesday by the U.S. and highlights the complex relationship Biden seeks to build with China. He is seeking agreement on key issues such as climate change, trade, and economic arm race. Biden’s success at home is a rare sign of cooperation. Inflation and high gas prices are two examples.

Daniel Yergin (an oil historian and vice-chairman of IHS Markit) stated that “This is a new era in oil diplomacy for America to coordinate with India, China.” China’s cooperation is expected to be limited to environment and energy.

Yergin stated that climate and energy were in a different category than all of the difficult issues between the countries.

Biden’s diplomatic efforts with China were first revealed in Glasgow, Scotland, this month. There, the two nations reached a surprising deal to boost climate action, including reducing methane emissions, which is a potent greenhouse gas.

Amy Myers Jaffee, Tufts University researcher and expert on climate change and global energy markets, stated that “Glasgow demonstrated that there are some levels of mutual interest and diplomacy which can succeed between the United Statess and China”.

Jaffee indicated that the two countries recognize the value of a worldwide climate agreement. Jaffee stated, “I would say Ditto on the oil market.”

Washington is at odds with Beijing over trade and rights issues related to Xinjiang. The two world’s largest economies, however, would reap the benefits of energy cooperation due to their hostile relations with Russia (Saudi Arabia) and Russia (in terms of maintaining low oil prices for consumers).

The combined consumption of the United States, China, and nearly 35,000,000 barrels of crude oil per day is more than one third of world demand. Despite being the largest producer of oil in the world, the United States is second for crude imports, behind China.

U.S. gas prices at seven-year high U.S. gas prices at seven-year high https://graphics.reuters.com/USA-GASOLINE/PRICES/znvnekmrbpl/chart.png

The world’s top oil-importing nations https://graphics.reuters.com/GLOBAL-OI/lbpgnbezdvq/chart.png

China currently imports more oil than 10,000,000 barrels per day. In contrast, the United States imports 6 million barrels per hour. But, over recent years, its dependence has been reduced on OPEC producers. Most of their imports come from Canada.

China has not announced an oil tap, but Biden talked to President Xi Jinping earlier about opening China’s reserves. Chinese officials confirmed that on Nov. 18, they have been working on a release. China made the historic first oil release from its reserves in September. This was done to stabilize market prices.

Other large importers include India, Japan, and South Korea. They are third, fourth, and fifth respectively.

Inflation soared to seven-years highs in October, which impacted Biden’s approval ratings ahead of the midterm elections next January. Biden and his fellow Democrats cannot afford to lose their seats in 2022, with razor-thin majorities in each chamber of Congress.

TRICKY REPEAT DEAL

The White House said Tuesday that Biden may take further action to coordinate with other countries in order to keep supply flowing as the COVID-19 pandemic subsides.

This may prove difficult.

Not only can U.S.-China tensions impede further cooperation but also the U.S. has set itself apart from other strategic reserves holders because its legislative order for the authorization of the

ClearView Energy Partners, which is a nonpartisan research firm, wrote in a note to clients that they had sold off strategic stockpiles to help finance government programs.

About 18 million barrels were released from the U.S. as a frontloading exercise to meet required sales mandated in Congress recent years.

It is possible that producer and consumer nations could continue upping their opposition to announcements about global oil supplies. This scenario would increase oil prices’ volatility, which Yergin refers to as a “bloc versus Bloc” situation.

However, Yergin noted that oil prices could be impacted by consuming countries’ actions in the short-term.

This oil deal also happens at a moment when supply/demand balances are on the course to improve in the coming months. What it means at least for now is you’ll hear a lot fewer predictions about $100 oil.”