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US to release oil reserves in attempt to lower prices

ART GALLERY

The US has said it is releasing 50 million barrels of oil from its reserves in an attempt to bring down soaring energy and petrol prices.

The move coincides with that of other major oil-consuming countries, including China, India, Japan, South Korea, and the United Kingdom.

US Vice President Joe Biden has repeatedly urged the Opec group of oil-producing countries to increase output more quickly.

Opec, on the other hand, has stuck to its agreement to gradually increase output.

It is concerned that a resurgence of coronavirus cases will reduce demand, as it did during the pandemic’s peak.

Crude oil prices have recently reached seven-year highs, owing to a sharp increase in global demand as economies recover from the coronavirus crisis.

It’s driven up petrol prices and energy bills in many countries.

In a statement the White House said: “American consumers are feeling the impact of elevated gas prices at the pump and in their home heating bills, and American businesses are, too, because oil supply has not kept up with demand.

“That is why President Biden is using every tool at his disposal to work on lowering prices and addressing the supply shortage.”

The UK government will allow firms to voluntarily release 1.5 million barrels of oil from privately held reserves as part of the coordinated effort.

It stated that the action would help the global economy recover, but that “any benefit for UK drivers is likely to be limited and temporary in nature.”

India will release five million barrels, while South Korea, Japan, and China will announce their amounts and timing in due course.

‘Not large enough’

According to officials, this was the first time the US coordinated such a move with some of the world’s largest oil consumers. Analysts, however, questioned whether it would have much of an impact.

“It’s not large enough to have a meaningful impact on prices, and it may even backfire if it causes Opec+ [which includes Russia] to slow the rate at which it increases output,” said Caroline Bain, chief commodities economist at Capital Economics.

However, Washington’s effort to collaborate with other major economies to lower energy prices sends a message to Opec and other major producers that they must address concerns about high crude prices, which are up more than 50% this year.

At its monthly meetings, Opec+, which includes major producers such as Saudi Arabia and Russia, has repeatedly refused requests to pump more oil, causing frustration in the United States.

“We will continue to discuss this issue with international partners,” a senior US administration official told reporters on Tuesday.

“The president is prepared to take additional action if necessary, and is willing to use his full authority in coordination with the rest of the world.”

According to Carsten Fritsch, a Commerzbank analyst, the move may force Opec+ to reconsider its strategy and agree to increase output at its meeting next week.

“To put things into perspective, 50 million barrels equates to an increase in production of 1.6 million barrels per day for one month or 1 million barrels per day for seven weeks. This is very important.”

However, Caroline Bain, Capital Economics’ chief commodities analyst, said the release was “not large enough to bring down prices in a meaningful way and may even backfire if it prompts Opec+ to slow the pace at which it is increasing output.”

“As such, it appears to be quite symbolic and politically motivated,” she explained.

She went on to say that the move “also appears a bit impatient,” given that analysts believe that if Opec+ continues to pump more oil, the market will be in surplus in the first quarter of next year.

This “would naturally bring down oil prices,” Ms Bain said.

SourceBBC
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