Rishikesh KumarAll materialsWrite to the authorThe US has urged China, India, Japan, and South Korea to join in a coordinated effort to release crude oil from their strategic reserves. With inflation the highest it’s been in 30 years, the Biden administration considers that the move will help lower gas prices and send a message to OPEC.On Tuesday, US President Joe Biden and the Indian government authorised a historic release from their strategic oil reserve to help offset a surge in oil prices. India’s Ministry of Petroleum and Natural Gas has agreed to release 5 million barrels of crude oil from its strategic petroleum reserves.
“This release will happen in parallel and in consultation with other major global energy consumers including the USA, People’s Republic of China, Japan and the Republic of Korea,” the statement issued by India's Ministry of Petroleum and Natural Gas said.
Without revealing the timing of the sale, Japan also agreed to release a few hundred thousand kilolitres of oil from its national reserve on Wednesday. China has so far been ambiguous in its position over the proposal.
"China will organise the release of oil [to the market] from state reserves and take other necessary measures to maintain market stability in accordance with its own real needs," Zhao Lijian, a Foreign Ministry spokesperson, said on Wednesday.
It is estimated that this coordinated release may add about 70 million to 80 million barrels of crude supply to the market.
Sputnik spoke with Amit Bhandari, a fellow at the energy and environment studies programme at Mumbai-based think-tank Gateway House, about the coordinated call to tame energy prices.Sputnik: What is the primary cause behind the sudden move to increase the supply of crude oil in the market from strategic reserves? Is it only due to inflationary pressure in the US or something else?Amit Bhandari: It may be a desire to show that something is being done about the rising price of petroleum. Co-ordinated action by multiple governments also indicates to oil producers that the prices have reached an uncomfortable level – which is not good for oil exporters in the longer time frame.Sputnik: Is releasing oil from countries’ reserves a long-term fix to the problem?
Amit Bhandari: A long-term impact on oil prices is only possible if there’s a significant shift either in oil demand or in supply. Bringing out some barrels from storage can help deal with any short-term disruptions, but it won’t fundamentally alter the demand-supply balance of the market.Sputnik: Considering tensions in the oil-producing region over various causes, is it prudent to use strategic oil reserves to cool prices? Amit Bhandari: In this case, I feel without dealing with the cause of poor supply – underinvestment in oil exploration and production, taking some oil out of storage will not really make any difference to the market. Oil prices fell in 2014-15 as a large volume of new oil came from the US shale. The fall in early 2020 happened because demand crashed. Is either of these two likely to happen now? I think not. The best-case scenario is some additional production by OPEC in response to the signal from oil buyers, but this doesn’t alter the market dynamics.As of now, I don’t see any major geopolitical risks to oil major oil producers.
Sputnik: Might we see a counter-strategy from OPEC or OPEC+?Amit Bhandari: Unlikely. Oil sellers depend on oil buyers for their prosperity – it is two-way dependence. Moderate prices are also beneficial for OPEC, as they reduce the incentive to look for alternatives, such as shale oil or electric vehicles. In any case, OPEC has already been co-ordinating its moves for a long time now, decades. At best, you could say that this is an example of oil buyers taking co-ordinated action.
US Looking at Tools to Make Fuel More Affordable as OPEC Ignores Calls to Boost Output – Granholm7 November, 15:16 GMTSputnik: Is this beginning of a long-term alliance of oil consumers or just a temporary measure?Amit Bhandari: I feel it’s a political move by the leaders of consuming nations to show they are doing something about the prices. Other than that, I wouldn’t read too much into this move.Sputnik: What kind of impact do you see on US-China ties if they collaborate on energy prices?Amit Bhandari: I wouldn’t read too much into this. Remember that the most valuable US companies are Apple, Google, and Facebook – not ExxonMobil. Similarly, the most valuable Chinese companies are Tencent and Alibaba, not Sinopec or PetroChina. The oil industry is not the biggest or the most influential sector, by some margin. I think it would be a leap of faith to assume that some symbolic cooperation on oil is enough to offset the mistrust of IPR and data theft.