Oil market volatility continues as Biden asks Asian consuming nations to tap their reserves
Despite OPEC and friends declaring that the market is well supplied with oil, the US administration is urging the release of strategic reserves to calm the price
Despite OPEC and friends declaring that the market is well supplied with oil, the US administration is urging the release of strategic reserves to calm the price.
In Friday trading, Brent crude was priced above US$78 and West Texas Intermediate (WTI) holding above US$76 a barrel.
While global energy leaders met in the UAE this week for ADIPEC, the US asked Asian consuming nations to open their strategic oil reserves.
Considering a release
When China said it was considering a release, the oil price took a hit and Reuters has since reported that the country’s state reserve bureau announced it will release some stocks and post details soon.
Any release in reserves would drive prices lower for a while, but many analysts argue that releasing reserves is not a good move. Goldman Sachs (NYSE:GS) issued a note saying that such a move would only “provide a short-term fix to a structural deficit”.
The Indian oil minister, Hardeep Singh Puri represents a huge oil importing nation and knows the pain of high oil prices.
He spoke to Bloomberg TV on the side-lines of ADIPEC and cautioned against this move.
“Strategic oil reserves were not ever intended for a situation like this,” reminding the world of the value of keeping reserves in the first place, “if there’s an earthquake, a global outbreak of hostilities and oil supplies are shut”.
A statement from Japan said the country was prevented by law to use reserves just to lower price.
OPEC+ will meet again in December when their phased and scheduled release of oil will occur; a situation the US is clearly not satisfied with. OPEC is hesitant to increase supply too quickly, saying it expects supply to be higher than demand in the first quarter.
Cleaner oil through carbon capture?
Speaking at ADIPEC, the CEO of Occidental Petroleum, Vicki Hollub said that while it’s essential to remove CO2 from the atmosphere, she believed the oil industry can produce cleaner oil through carbon capture.
When asked if the US President was doing the right thing by calling on OPEC, she suggested he might have been better off to make “a local call” and ask US producers to deliver more oil to the market, adding that it could be done cheaply in the US.
Covid-19 cases are on the rise in Europe again, so a possible fall-off in demand is also impacting the oil price.
The global economy has been bouncing back with demand soon expected to be at pre-pandemic levels, but any hint of uncertainty makes traders nervous.
Austria has already introduced lockdown in some areas with mobility access for vaccinated people only. More lockdowns take effect next week and Germany has also reported an increase in cases.
Confident on oil and gas
The annual gathering of the hydrocarbon industry in the UAE this week was extremely confident of the role of oil and gas for the foreseeable future.
At various public sessions at ADIPEC this week, the figure of US$600 billion in investments was talked about.
One of the big challenges for energy companies will be the two-tiered investment system needed to move the energy transition.
The price of Brent has increased almost 60% this year as economies bounce back from the pandemic.
OPEC+ will continue to add oil to the market as agreed next month but sustained high prices will also continue to add pressure to this volatile market.
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