Markets uncertain over US-led oil reserves plan

The decision by the US, the largest producer of crude, and some of the world’s biggest oil-importing countries to release millions of barrels of strategic oil reserves to bring down high energy prices has left markets with uncertainty.

Oil prices surged on Tuesday following the announcement that the US and oilimporting countries such as India, the UK, Japan and South Korea, would release 80 million barrels of crude on to the market.

Crude commodity prices are 60 per cent higher than at the start of the year owing to the economic recovery in many parts of the world.

Brent, under which two thirds of the world’s crude is traded, rose 3.5 per cent, settling at $82.25 a barrel on Tuesday after the announcement by the White House.

West Texas Intermediate, which tracks US crude grades, jumped 2.65 per cent to close at $78.50 a barrel.

But the benchmarks remained muted yesterday, with Brent down 0.63 per cent at $81.79 a barrel at 3pm UAE time and WTI down 0.43 per cent at $78.16 a barrel.

The US will release 50 million barrels from its strategic reserves – stocks of crude maintained to meet emergency needs.

It intends to bring forward a sale of 18 million barrels of crude and will exchange the remainder with buyers.

India and Japan will release five million barrels each, while South Korea will release 3.5 million barrels.

The UK will release 1.5 million barrels, while China has not yet announced its plans.

“With President [Joe] Biden using most of his discretionary quota available last night from the SPR, the amounts released over the time frame will not be enough to materially impact oil prices and, clearly, markets also thought the same,” said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.

Market observers will now turn to Opec+, the supergroup of producers led by Saudi Arabia and Russia, to determine its response to the US announcement.

Opec+ will meet on December 2 to evaluate the last increment of its plan to return two million barrels a day of supply to the markets by the end of the year, reversing historic cuts to offset low demand during the pandemic.