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

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WASHINGTON, Nov. 18 (Reuters) – The Biden government’s push for a coordinated release of oil supplies serves as a warning to the OPEC + manufacturing group that it should pump more oil to address concerns about high fuel prices in powerful economies like the US and China clear out and others.

For weeks, the White House and government officials had urged the Petroleum Exporting Countries Organization and its allies, including Russia, to accelerate production increases to meet demand as the world economy recovers from the depths of the pandemic.

After these requests were rejected, the Biden government devised another plan to maintain the pressured OPEC + ahead of their December 2nd meeting on oil exploration policy.

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Government officials, led by Amos Hochstein, senior adviser on energy security, have brought in longtime allies Japan and South Korea as well as China and India to consider a joint release of emergency reserves, a government source told Reuters on Wednesday.

These countries and the United States are the top five oil importers in the world, so the move could send a strong signal for consumer and nation unity on global energy prices. If stocks are released, prices could fall, at least in the short term, analysts said, which could hurt OPEC + earnings.

“The strategy here appears to be not just a response to the alleged rejection of the president’s requests, but a deliberate threat,” said Kevin Book, an analyst with the non-partisan ClearView Energy Partners research group.

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

OPEC + has announced that it will stick to its plans to gradually increase production from around 400,000 barrels per day per month. An OPEC + source said the US move was a desperate way to challenge the group, saying “Cases of COVID are on the rise and new containment measures are sure to be put in place that will reduce demand for oil”.

CONSUMER UNIT

When global supply problems require a coordinated release of inventory, the United States has historically worked with the Paris-based International Energy Administration, a block of 30 energy-consuming industrialized nations.

Japan and South Korea are IEA members, while China and India are only associate members. China’s reserve office is working on releasing reserves, a spokeswoman said without further details.

India, as a major oil consumer, flexed its muscles the hardest, cutting supplies from Saudi Arabia by about a quarter after OPEC + extended production cuts. Continue reading

In Dubai this week, Oil Minister Hardeep Singh Puri said that OPEC members could benefit from high prices for a while, but if they undermine the global economic recovery, “it may bounce back and haunt you”.

The Biden administration source said US officials are reaching out to these Asian countries rather than European IEA members, who are more concerned about rising natural gas prices and less concerned than Asian nations about crude oil prices.

“We understand that they probably don’t want to step into the market there,” the source said.

Biden has an up and down relationship with Saudi Arabia, the de facto leader of OPEC. In the 2019 election campaign, Biden described the kingdom as an “outcast” and said he plans to take a firmer stance on Saudi’s human rights record and war in Yemen.

The Biden government has restricted arms sales to Saudi Arabia to defense weapons. US lawmakers have criticized Riyadh for its involvement in Yemen, a conflict widely recognized as one of the world’s worst humanitarian disasters.

However, the White House 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 additional barrels of oil. While this move resulted in cheaper gasoline, it also drove crude oil prices to minus $ 40 and put jobs at risk in the US domestic oil industry.

With the Saudis now refusing to replenish crude oil supplies, Biden has raised the idea of ​​jointly releasing emergency reserves directly with China’s President Xi Jinping, several government sources said in a broader discussion earlier this week.

“While we have some strong disagreements with China, we can of course work with them on this matter because there are many similarities with the impact of high oil prices on our respective economies,” the government source said.

(This story has been rewritten to correct the title from Hochstein to Senior Adviser on Energy Security in the fourth paragraph)

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Reporting by Timothy Gardner; additional coverage from Nidhi Verma in Delhi; Arrangement by Richard Valdmanis, David Gaffen and David Gregorio

Our standards: The Thomson Reuters Trust Principles.


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