Timothy Gardner and Valerie Volcovici
(Reuters) – The United States expects to announce a loan of $500,000 from its emergency stockpile Tuesday in accordance with a plan it devised with Asian energy consumers. This is part of a strategy to lower energy prices.
This move will help to control rising energy prices. It comes after the OPEC producer groups and their allies repeatedly rejected requests by Washington and other consumers nations for more rapid pumping to meet growing demand.
U.S. President Joe Biden’s approval rating is low due to rising gasoline prices and other consumer goods in recovery from coronavirus, which pose a risk to Biden and his Democratic party before next year’s congressional elections.
The source stated that a “swap”, or withdrawal from the U.S. Strategic Petroleum Reserve, (SPR), will be announced Tuesday. It is coordinated with multiple countries. However, the source didn’t specify how much oil would come out of the stocks.
Biden asked China and South Korea, Japan, to open up their oil strategic stocks, in accordance with the United States. Reuters said that Indian and Japanese officials were working together to achieve this goal.
Washington’s unprecedented attempt to join forces with Asian countries to reduce energy prices was intended to warn major oil producers to pump more oil in order to alleviate concerns about high fuel prices within powerhouse economies.
OPEC+ (Organization of the Petroleum Exporting Countries) is a consortium that includes Russia and other allies. They plan to meet in December 2 to discuss production policy.
The United States worked historically with the Paris-based International Energy Agency. This is a group made up of 30 industrialized nations that use energy to produce electricity. It was created when there were global supply shortages and required a coordinated release.
Japan and South Korea have joined the IEA, while China is an associate member.
SPR Swaps allow oil companies to take crude oil out of their stockpiles, but they are required by law to return the oil or the refined product plus interest. When oil companies are facing a disruption in supply, such as a pipeline accident or hurricane damage, swaps can be offered.
It is less frequent to sell outright.
The SPR has been authorized by the U.S. Presidents three times. This was most recently during a war with Libya, an OPEC member. Also, sales were made during the Gulf War of 1991 and Hurricane Katrina 2005.
High prices today are not due to a shortage, rather they reflect a recovery in global energy consumption from the lows recorded during the lockdowns of the first days after the coronavirus epidemic.
OPEC+ is adding approximately 400,000 barrels to the market each month to satisfy the growing demand. However, Biden has resisted his calls for faster increases. He believes that the rebound in the demand may be fragile.
Recent crude oil rallies have been slowed by the threat of an uncontrolled release of oil stockpiled onto the markets and new European coronavirus lockdowns. The last barrel traded at $79.50 per barrel. This is more than $7 below the peak in October.
Citigroup Analysts at NYSE estimated that the combined oil release from America and other countries would be in the range of 100 to 120 million barrels (or higher).
According to a source who was familiar with the talks, China and other countries’ input is not yet certain. South Korea and India are likely to only contribute a fraction of the barrels.