China so far non-committal to Washington’s oil release, Opec+ unmoved

Pumpjacks are seen against the setting sun at the Daqing oil field in Heilongjiang province, China December 7, 2018. — Reuters pic
Pumpjacks are seen against the setting sun at the Daqing oil field in Heilongjiang province, China December 7, 2018. — Reuters pic

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BEIJING, Nov 25 — China, the world’s largest crude importer, was non-committal about its intentions to release oil from its reserves as requested by the United States, while Opec producers were not considering changing tactics in light of the US action, according to three sources in the group.

On Tuesday, US President Joe Biden’s administration announced plans to release millions of barrels of oil from strategic reserves in coordination with other large consuming nations, including China, Japan and India, to try to cool prices.

The United States has made the largest commitment for a reserves release at 50 million barrels of pre-approved sales along with loans to the market, but without China, the action is considered less dramatic.

On Wednesday, China said it was working on its own reserves release. The announcement confirmed a Reuters report last week that China was working on its own timeline.

On Tuesday, Biden had told a briefing China “may do more.” Crude oil prices had been falling for several days on rumors of a coordinated action, but oil prices jumped 3 per cent on Tuesday as Washington tapped its strategic reserve but the market lacked clarity on China’s intentions.

Washington’s move raised speculation that the Organization of the Petroleum Exporting Countries and allies, collectively known as Opec+, might consider pausing its current agreement to boost output by 400,000 barrels per day every month, but the group is not considering that, three sources told Reuters.

Fuel demand cratered early in the pandemic but has come roaring back this year, and oil prices have surged. Biden, facing low approval ratings ahead of next year’s congressional elections, has grown frustrated at OPEC+ shrugging off his repeated requests to pump more oil. Retail US gasoline prices are up more than 60 per cent in the last year, the fastest rate of increase since 2000.

On Wednesday, Brent crude settled down 6 cents to US$82.25 a barrel after a 3.3 per cent increase on Tuesday. The contract had fallen 10 per cent in the days prior to the news on rumors of a coordinated release.

“The market seems to believe in Opec+ to keep oil balances tight more than it believes in the transitory nature of an SPR release,” said Rystad Senior Oil Markets Analyst Louise Dickson on Wednesday.

Opec response

Opec+, which includes Saudi Arabia and other US allies in the Gulf as well as Russia, has rebuffed requests so far to pump more. It meets again on Dec. 2 to discuss policy but has so far not indicated it will change tack.

The group is monitoring whether oil markets are balanced, Iraq’s oil minister Ihsan Abdul Jabbar said on Wednesday, saying the group still needs to study the latest data before making decisions about supply.

The group has been struggling to meet existing targets under its agreement to gradually increase production and remains worried that a resurgence of coronavirus cases could again drive down demand.

Washington’s effort to team up with major Asian economies to lower energy prices was a warning to Opec+ to control crude prices that are up more than 50 per cent so far this year.

In the past, multi-country releases from reserves have been coordinated by the International Energy Agency (IEA), a Paris-based watchdog. The IEA does not intervene to influence prices, but the head of the agency said Wednesday some producers have been restricting supply too much.

“Some of the key strains in today’s markets may be considered artificial tightness ... because in oil markets today we see close to 6 million barrels per day in spare production capacity lies with the key producers, Opec+ countries,” said Fatih Birol, IEA head.

Under the plan, the United States will release 50 million barrels, the equivalent of about 2-1/2 days of domestic demand. However, some analysts called the structure of the US release — a combination of 18 million barrels of pre-approved sales and a loan of 32 million barrels — too small and temporary.

Goldman Sachs said the volume announced was “a drop in the ocean”.

It was the first time the United States has coordinated such a move with some of the world’s largest Asian oil consumers, officials said. India plans to release 5 million barrels and Japan “a few hundred thousand kilolitres” of oil from its national reserve. South Korea has not provided any details of its plans. — Reuters

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