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Analysis: Biden’s overture to Asian oil consumers serves warning to OPEC+

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Analysis: Biden's overture to Asian oil consumers serves warning to OPEC+
© Reuters. FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base

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By Timothy Gardner

WASHINGTON (Reuters) – The Biden administration’s push for a coordinated release of oil stockpiles serves as a warning to the OPEC+ production group that it should pump more oil to address concerns of high fuel prices in powerhouse economies like the United States, China and others.

For weeks, the White House and administration officials had urged the Organization of the Petroleum Exporting Countries and its allies including Russia to accelerate production increases to satisfy demand as the global economy rebounds from the depths of the pandemic.

After those pleas were rebuffed, the Biden administration hatched a different plan to keep the pressuring OPEC+ ahead of its Dec. 2 meeting on oil output policy.

Administration officials, led by Special Adviser on Energy Amos Hochstein, pulled in longtime allies Japan and South Korea as well as China and India to consider a joint release of emergency reserves, an administration source told Reuters on Wednesday.

Those countries and the United States are the world’s five largest oil importers, so the move could act as a powerful signal about consumer-nation unity on global energy prices. If stocks are released, it could drive prices lower, at least in the short-term, analysts said, which could hit OPEC+ revenue.

“The strategy here seems like not only a response to the alleged rebuffing of the presidential requests, but also a deliberate threat,” said Kevin Book, an analyst at the nonpartisan ClearView Energy Partners research group.

Just as Saudi Arabia and other OPEC nations years ago joined with Russia and other producers to form the more powerful OPEC+, Biden’s outreach to Asian nations suggests the possibility of a broader consumer group that could become “the IEA+”, Book said.

OPEC+ has said it intends to stick to plans for a gradual increase in output of about 400,000 barrels per day each month. One OPEC+ source said the U.S. move was a desperate way to challenge the group, saying “cases of COVID are increasing and surely new containment measures will be imposed that will reduce the demand for oil.”

CONSUMER UNITY

When global supply issues demand a coordinated release of stocks, the United States historically has worked with the Paris-based International Energy Administration, a bloc of 30 industrialized energy-consuming nations.

Japan and South Korea are IEA members, while China and India are only associate members. China’s reserve bureau is working on a release of reserves, a spokeswoman said, without additional details.

India has been the most forceful about flexing its muscles as a major oil consumer, cutting shipments from Saudi Arabia by about a quarter after OPEC+ extended production cuts.

This week, Oil Minister Hardeep Singh Puri said in Dubai that OPEC members could take advantage of high prices for awhile, but if they undermine the global economic recovery, “That can rebound and come to haunt you.”

The Biden administration source said U.S. officials turned to these Asian countries instead of European IEA members who are more worried about soaring prices and less concerned than Asian nations about prices.

“We understand that’s not where they would probably want to intervene in the market,” the source said.

Biden has had an up-and-down relationship with Saudi Arabia, OPEC’s de facto leader. On the campaign trail in 2019, Biden described the kingdom as a “pariah” and said he planned to take a firmer stand on Saudi’s human rights record and its war in Yemen.

The Biden administration has limited arms sales to Saudi Arabia to only defensive weapons. U.S. lawmakers have criticized Riyadh for its involvement in Yemen, a conflict considered one of the world’s worst humanitarian disasters.

The White House, however, has not yet threatened to withdraw military support as former President Donald Trump did in 2020 when the Saudis flooded the market with millions of extra barrels of oil. While that move resulted in cheaper gasoline, it also drove crude prices as low as negative $40 and endangered jobs in the U.S. domestic oil industry.

With the Saudis now refusing to boost crude supplies, Biden did raise the idea of a combined release of emergency reserves directly with China’s President Xi Jinping, several administration sources said, as part of a broader discussion earlier this week.

“While we have some strong disagreements with China, obviously, we can work with them on this issue because there’s a lot of similarities to the impact on our respective economies of high oil prices,” the administration source said.

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Caracas and Chevron will soon sign a series of contracts on crude oil production in Venezuela

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crude oil production in Venezuela

Caracas and Chevron will sign a series of contracts after Washington allowed the company to start crude oil production in Venezuela, local oil minister Tarek El Aissami said Tuesday.

According to the EFE news agency, the minister was informed of a “productive working meeting” with Chevron Venezuela head Javier La Rosa. “In the coming hours we will sign contracts to spur the development of joint ventures and oil production,” the minister said. What exactly will be in those contracts has not yet been disclosed.

The U.S. Treasury Department said earlier in November that it had allowed Chevron Corp (NYSE:CVX). To resume resource extraction activities in Venezuela on a limited scale. If it is possible to influence the world oil market in this way, the situation on the stock market, including Boeing stock price predictions, will also improve.

Note that the cost of oil production in Venezuela compared with world prices is very low. According to the document, the company is allowed to extract, transport and supply to the United States oil or oil products produced by joint ventures (JV) Chevron (the license does not allow delivery to any other countries), as well as to carry out any related maintenance and repair on the joint venture assets. Also, Chevron was granted the right to purchase and import into Venezuela goods or resources related to the above activities, including diluents, condensates, oil or natural gas products.

We previously reported that oil prices are rising on the supply and demand outlook.

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Why is oil getting more expensive? Price rises on supply and demand outlook

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Global oil prices moved higher Thursday afternoon, trading data showed. Why is oil getting more expensive? Investors continue to assess the prospects for the balance of supply and demand in the market, including the OPEC+ deal.

Why have oil prices gone up so much? The price of January futures on Brent grew 0.83% to $87.69 per barrel, while February futures on WTI grew 0.87% to $81.25. Oil was getting cheaper by 0.5% in the morning.

Why have oil prices gone up so much?

Investors continue to watch the outlook for oil supply and demand. Thus, investors are waiting for the OPEC+ meeting, which is scheduled for Sunday, December 4. Traders assess whether the parameters of the oil agreement will be changed. Because the situation remains tense, even the stock market is falling. The trend can even be seen in Walt Disney stock price predictions.

Traders also fear a possible recession amid global central bank policy to raise rates due to high inflation as well as China’s measures to combat the coronavirus. The economic outlook could affect oil demand.

“The OPEC+ decision remains uncertain, but an extension of current production cuts is likely. The group will need to better understand China’s real measures on COVID before doing anything else with production levels,” Vanir Global Markets Pte. managing director James Whistler told Bloomberg. James Whistler.

Earlier, we reported that Bloomberg learned about the EU’s discussion of a $60 price ceiling on Russian oil.

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G7 countries back the price cap on Russian oil. Bloomberg found out about the discussion in the EU of the $60 price cap on Russian oil

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EU member states are discussing a $60 price cap on Russian oil, Bloomberg reported, citing knowledgeable sources. G7 countries back the price cap on Russian oil.

The EU had planned to announce a price cap on Russian oil on November 23, but negotiations within the bloc were delayed. In four days, on December 5, the embargo on fuel imports to the European Union by sea will come into force. but the decision has not yet been taken and coordinated with the G7 countries, which are not members of the EU. Within the European Union, Poland, Lithuania and Estonia require lowering the bar much lower, and Greece, Cyprus and Malta, which have a very developed shipping industry, on the contrary, insist on softer conditions. Explained Bloomberg. 

It is still unclear whether both groups are willing to go to the limit of $60 a barrel, but most – agree, subject to other requirements, say agency sources. Negotiations are ongoing. The decision requires the approval of all EU members and the agreement of the decision with the G7. According to one of Bloomberg’s sources, $60 a barrel falls within a suitable range for the G7.

What does the price cap on Russian oil mean?

What does the price cap on Russian oil mean? $60 a barrel is even a bit more than what Russian oil costs on the market now, Bloomberg said. The purpose of the cap is to limit Russia’s income from selling oil while keeping it on the world’s market. And EU sanctions, if the ceiling price is not set, will prohibit maritime transport of Russian oil to third countries and insurance of these shipments. 

For the scheme to work, the ceiling must be attractive enough for Russia to continue trading; otherwise Moscow could threaten to reduce production, and this would lead to a spike in global oil prices. Bloomberg explained.

The day before the EU embargo goes into effect, OPEC+, in which Russia also sits, will meet. On November 29, sources told Bloomberg that the format of the meeting was suddenly changed to an online meeting instead of a face-to-face meeting. The sources at Bloomberg did not explain what this was about. But we note that the tension in the market is already affecting even Google stock price predictions

At the last meeting on October 5, which was the first face-to-face meeting since the beginning of the pandemic, OPEC+ went for the sharpest production reduction since 2020 – by 2 million barrels per day. 10 traders out of 17 surveyed by Bloomberg expected that new production cuts could follow at the new meeting as well.

Earlier we reported that oil prices are falling amid protests in China.

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