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Asia looks at SPR shock treatment for high oil prices after U.S. request

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Asia looks at SPR shock treatment for high oil prices after U.S. request
© Reuters. FILE PHOTO: A crude oil tanker is seen at Qingdao Port, Shandong province, China, April 21, 2019. REUTERS/Jason Lee/File Photo

By Chen Aizhu and Aaron Sheldrick

TOKYO (Reuters) – Some of the world’s biggest crude oil buyers said on Thursday they are looking at tapping strategic oil reserves after several sources told Reuters the United States had requested a coordinated move to cool global energy prices.

Oil prices are down around 4% since Wednesday as the shock treatment seemed to take effect.

The administration of U.S. President Joe Biden asked big oil buyers like China, India and Japan to consider releasing crude stockpiles, according to several people familiar with the requests. [L1N2S82VT]

The unusual move comes as Biden, facing midterm elections next year, fends off political pressure over rising pump prices and other consumer costs driven by a rebound in economic activity from lows plumbed early in the coronavirus pandemic.

“Brent is now under 80 bucks,” said John Driscoll, managing director at consultancy JTD Energy in Singapore. “It’s having a short-term effect on oil markets, it’s probably good for at least a 5% correction.”

(Graphics: U.S. & futures slip after U.S. govt requests that some big oil buyers sell reserves – https://fingfx.thomsonreuters.com/gfx/ce/mopanloklva/USvsBrentNov182021.png)

The U.S. move also reflects frustration with members of the Organization of the Petroleum Exporting Countries (OPEC) and its allies who have rebuffed repeated requests from Washington to speed up production increases.

Biden and top aides have discussed the possibility of a coordinated release of stockpiled oil with close allies including Japan, South Korea and India, as well as with China, over the past several weeks, sources told Reuters earlier.

China’s state reserve bureau https://www.reuters.com/business/energy/exclusive-china-reserve-bureau-working-crude-oil-release-2021-11-18 said it was working on a release of crude oil reserves although it declined to comment on the U.S. request.

A Japanese industry ministry official said the United States had requested Tokyo’s cooperation in dealing with higher oil prices, but he could not confirm whether the request included coordinated releases of stockpiles. By law, Japan cannot use reserve releases to lower prices, the official said.

A South Korean official confirmed the United States had asked Seoul to release some oil reserves.

“We are thoroughly reviewing the U.S. request, however, we do not release oil reserve because of rising oil prices. We could release oil reserve in case of supply imbalance, but not to respond to rising oil prices,” the official said.

The United States and its allies have coordinated strategic petroleum reserve releases before, for example in 2011 during a war in OPEC member Libya.

But the current proposal represents an unprecedented challenge to OPEC, the cartel that has influenced oil prices for more than five decades, because it involves China, the world’s biggest importer of crude.

The U.S. SPR was set up in the 1970s after the Arab Oil Embargo to ensure the United States has adequate supply to weather an emergency.

(Graphics: oil in Strategic Petroleum Reserves – https://fingfx.thomsonreuters.com/gfx/ce/klpykdleepg/USCrudeSPRNov2021.png)

OPEC and other producers including Russia, known collectively as OPEC+, have been adding around 400,000 barrels per day to the market on a monthly basis, but have resisted Biden’s calls for more rapid increases, arguing the rebound in demand could be fragile.

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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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why is oil getting more expensive

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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g7 countries back price cap on russian oil

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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