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The
move is designed to tame soaring energy prices after the OPEC
producer group and its allies rebuffed repeated requests from
Washington and other consumer nations to pump more quickly to
match rising demand.
U.S. President Joe Biden is facing low approval ratings due to
high prices for gasoline and other consumer items in the
recovery from the coronavirus pandemic, posing a threat to him
and his Democratic party ahead of next year's congressional
elections.
A so-called "swap" from the U.S. Strategic Petroleum Reserve (SPR)
will be announced on Tuesday in a move coordinated with several
countries, the source said. The source did not specify how much
oil would be released from the stockpiles.
Biden has already asked China, India, South Korea and Japan to
release strategic oil stocks in concert with the United States.
Japanese and Indian officials are working on ways to do that,
Reuters reported.
The unprecedented effort by Washington to team up with major
Asian economies to lower energy prices is intended as a warning
to major producers that they should pump more oil to address
concerns of high fuel prices in powerhouse economies.
OPEC+, which groups the Organization of the Petroleum Exporting
Countries (OPEC) and allies including Russia, plans to meet on
Dec. 2 to discuss output policy.
The impact of a coordinated oil release would depend on the
timeframe and quantity, but a release of more than about 60
million barrels in around 30 days would be seen by the market as
"very negative for pricing", said Commonwealth Bank of Australia
analyst Vivek Dhar.
"This situation is coming at a time when this market was
shifting and global oil stockpiles are rising. So this could see
prices fall more steeply than you think," he said, pointing to
new coronavirus lockdowns in Europe.
OIL OFF HIGHS
The United States historically has worked with the Paris-based
International Energy Agency (IEA), a bloc of 30 industrialized
energy-consuming nations when global supply issues demand a
coordinated release of stocks.
Japan and South Korea are IEA members, while China and India are
only associate members.
Under an SPR swap, oil companies take crude oil from the
stockpiles but are required to return it - or the refined
product - plus interest. Swaps are typically offered when oil
companies face a supply disruption like a pipeline outage or
damage from a hurricane.
Outright sales are less common.
U.S. presidents have authorized emergency sales from the SPR
three times, most recently in 2011 during a war in OPEC member
Libya. Sales also took place during the Gulf War in 1991 and
after Hurricane Katrina in 2005.
Current high prices have not been caused by a supply disruption,
but rather a rebound on global energy demand from lows struck
during lockdowns in the early days of the coronavirus crisis.
OPEC+ has been adding around 400,000 barrels per day to the
market on a monthly basis to meet the increasing demand, but has
resisted Biden's calls for more rapid increases, arguing the
rebound in demand could be fragile.
The threat of a coordinated release of stockpiled oil onto the
market, along with new coronavirus-related lockdowns in Europe,
has knocked the wind out of crude oil's rally lately. Brent
crude was last trading around $79.30 a barrel, down more than $7
from a peak reached in late October. [O/R]
Citigroup analysts estimated that a combined release of oil from
the United States and other countries could be "on the order of
100-120 million bbls or higher."
One source familiar with the discussions, however, said the
input from China and other countries is still very much up in
the air, and that nations like India and South Korea would be
likely to contribute just a small amount of barrels.
(Reporting by Valerie Volcovici and Timothy Gardner; additional
reporting by Sonali Paul in Melbourne; writing by Richard
Valdmanis; editing by Richard Pullin)
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