The release of US and Chinese reserves, a drop in the turbulent oil ocean: “Only OPEC can change things” | Economy


Aerial view of several crude oil tanks that are part of the US strategic reserves in Freeport (Texas).
Aerial view of several crude oil tanks that are part of the US strategic reserves in Freeport (Texas).ADREES LATIF (Reuters)

All eyes go back to the seventies these days. After decades of sluggish price levels in advanced economies, the inflationary revival has led many to go back to that decade, not without a dose of exaggeration: prices are rising this year in the West, yes, but at an infinitely slower pace. than then. The main factor behind this rise in prices is the rise in crude oil, which has also led not a few analysts to bring to the fore the oil crisis of that decade, which forced the United States to build strategic reserves to avoid future tensions. of supply. Two weeks ago, almost five decades later, the world’s two biggest powers – the United States and China – chose to release some of that stored energy to try to lower prices.

The move, coordinated with other major oil importers (Japan, the United Kingdom, India and South Korea) hints at a certain desperation: it is one of the last cards to play after pressure for the Organization of The Petroleum Exporting Countries (OPEC), which contributes almost 40% of the crude consumed in the world, reopens the oil tap and has given timid results. The increase in pumping endorsed by the exporting countries last week is clearly insufficient to close the gap between a demand that – pending the effect that the new variant may have – continues to spike upward and a supply that grows at a slower rate. a much slower pace than large consumers would like. The omicron strain, and not the release of reserves, has been, in fact, the only factor that has allowed prices to relax in recent days.

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The release of reserves is unprecedented in peacetime and in the absence of meteorological phenomena in producing countries: until this week, such a decision had only been made at a time when a war (that of the Gulf in 1991, that of Libya in 2011) or a severe weather event (such as Hurricane Katrina in 2005) had caused a short circuit in the supply. “They are there to alleviate supply problems, if you use them to try to move the market, you are making a mistake,” criticizes Mariano Marzo, emeritus professor of Earth Sciences at the University of Barcelona.

All governments are sensitive to fuel prices, but the United States is much more sensitive: dependence on the car in large areas of the country is enormous, and its users have seen gasoline prices almost double in the last year . Hence, the Democrat Joe Biden is forced to take measures that he did not have on his agenda and has to surf a certainly contradictory wave: he arrived at the White House with a green agenda and a commitment to renewable energy that is still fully in force, but Two of its first major measures in the energy field have been to pressure OPEC to increase the crude it puts on the market – for now, puncturing the bone – and partially release its strategic cushion – with equally modest results.

The volume of the agreed release of reserves is miniscule compared to the total size of the crude oil market, by far the most consumed raw material in the world. The 50 million barrels released by the US – of the more than 600 million it has in its portfolio -, for example, account for just over half of the crude produced in the world in a single day. Even adding the 30 million barrels pledged by China, Japan, India, South Korea and the United Kingdom does not change the picture much. It is, as several analysts write, including those of the investment bank Goldman Sachs, just “a drop” in the ocean of oil.

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“It is not new oil”

“Its impact has been slight, because it is not new oil, but existing barrels. It is not enough to scare exporters: the crux of the matter remains what OPEC can do. It is the only one that can change things, ”says Gonzalo Escribano, an energy specialist at the Elcano Royal Institute, who uses the same expression as Goldman Sachs: a drop in the ocean. “The only thing that would really solve the price spike is for the big producers to start pumping more,” he adds. Everything, of course, if the impact of the omicron variant on demand remains a scare and not something else. The movement of the United States and the rest of the countries involved “makes clear to OPEC the discontent of consumers, but the quantity released is very small compared to the demand,” says UBS chief economist Paul Donovan.

More critical is March, from the University of Barcelona. “The volume that is put on the market is ridiculous, and what they can end up promoting is just the opposite: that OPEC takes it as an affront and reacts by punching on the table [dando marcha atrás a su plan de ir aumentando poco a poco la oferta]”, He notes by phone. The cartel has not gone to that extreme in its first post-reserve release meeting: the December summit ended with no changes to the previously agreed course. But the market, he says, “keeps shaking thinking about the next meetings [del cartel de exportadores], and will only calm down when the offer really increases; not because four drops are added: that only increases concern even more ”.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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