Oil declined ahead of an expected announcement by the U.S. on a coordinated release of reserves, with OPEC+ warning that it may not restore as much crude to the global market if consumers go ahead with the move.
Futures in New York fell below $76 a barrel after rising 0.9% on Monday. The U.S. is preparing to announce the release in coordination with other nations as soon as Tuesday, according to people familiar. The move, likely in conjunction with India, Japan and South Korea, would be an unprecedented effort by consumers to tame prices. China said it’s also working to tap reserves.
OPEC+ delegates said the release of millions of barrels is unjustified under current market conditions and the group may have to reconsider plans to add more oil when they meet next week. A Covid-19 resurgence in the U.S. and Europe, meanwhile, is raising concerns about the outlook for demand.
The rift between producers and consumers threatens to set up a fight for control of the global oil market. Oil’s rally has faltered over the past few weeks, in part due to speculation that consumers will release supplies from strategic reserves. The U.S. is considering a release of more than 35 million barrels over time, although the situation remains in flux and plans could change, according to a person familiar with the White House’s plans.
“A 35-million barrel release from the U.S. would be significant,” said Warren Patterson, head of commodities strategy at ING Groep. “Once you consider potential volumes from others, we are looking at something pretty substantial. The risk of further Covid related restrictions this winter and potential SPR releases might be enough to persuade OPEC+ to pause supply increases.”
India has yet to decide on the timing and volume of releasing reserves and a move will be a coordinated step with other major consumers, according to government officials with knowledge of the matter. Japan has determined it can use its stockpiles legally as long as it taps surplus supply, according to a TV Asahi report, which cited an unidentified government official. It didn’t provide further details on how much oil would be released.
“OPEC+ producers could respond to a release of strategic stockpiles by holding back planned oil production increases to keep the oil market tight,” said Victor Shum, Singapore-based vice president of energy consulting for IHS Markit. “OPEC+ producers have the upper hand in the oil market currently.”
The White House is also considering a ban on its crude exports to reduce oil prices, according to a lawmaker championing the move. It was only six years ago that Congress lifted a 40-year-old ban on U.S. exports, which have regularly surpassed 3 million barrels a day.