American leader Joe Biden is trying with all his might to lead the United States out of the energy crisis, where the cost of motor fuel has been hitting seven-year highs for a long time. After his request to increase oil production by 600-800 million barrels per day was not heard by OPEC + members, he announced that the American administration had “other tools” in its arsenal. According to him, he will “talk to other countries at the right time” so that they “have more energy in the pipelines.” And Biden went East. According to media reports, it became known that he has approached China, India, South Korea and Japan, with a request to consider the possibility of freeing up strategic oil reserves to regulate oil prices.
In other words, in America itself, cartel collusion is prohibited at the legislative level, but Biden decided to unite the largest oil importers into a kind of anti-OPEC and, in opposition to production cuts to increase oil prices, release volumes of “black gold” from storage facilities to reduce its cost.
It will be fair to say that not a single oil crisis in the entire history of the world hydrocarbon market has done without the role of the United States, and not just a role, but a leading one. During the 1950s and 1960s, the United States was quite successful in controlling up to 90% of all oil exports from developing countries. Seven Sisters – the world’s largest oil companies set prices at their own discretion, which forced the oil producers to create OPEC.
The cartel squared its shoulders during the 1973 Arab-Israeli war, when, in response to American and European arms shipments to Israel, the Organization of Petroleum Exporting Countries took unprecedented measures to cut off oil supplies to the United States and Europe. The fuel crisis has begun.
In response to the birth of the oil-exporting cartel, the International Energy Agency was created. By the way, it was also called a kind of anti-OPEC, although today the organization acts exclusively as an information center and consulting organization. It has no effect on the market. Although initially it was the IEA that issued a recommendation for the countries that are its members – to organize oil storage facilities on their territory, which would allow each of them to hold out without the flow of hydrocarbons for 90 days.
Today, the total volume of storage facilities for oil and oil products in the world is about 8 billion barrels. Almost two thirds are in the countries of the Asian region and North America. The latter alone has reserves of about 700 million barrels. According to the Russian Gas Society, China is in second place in terms of reserves, with 500-600 million barrels in reserves. Then there are France, Holland and India, whose reserves are more than 10 times less than in the United States, and South Korea is in 13th place.
But one way or another, it is these reserves that Biden is counting on today to influence the oil market and save America from the energy crisis.
In the Land of the Rising Sun, on whose cities American nuclear bombs fell in 1945, they said that, by law, Japan could not use reserves to lower prices. China left the US request without comment, and Seoul, according to Reuters, only confirmed that such a request came from the US administration. According to a US agency source who participated in the discussions, the US share of any potential reserve release would need to be more than 20-30 million barrels to influence the markets. True, American sources for Reuters did not name the time frame for the release of this volume.
Meanwhile, the OPEC + alliance was created after the shale revolution in the United States, when American oil began to flood the markets and simply brought down oil prices, in 2016 the members of the association agreed to a consolidated decision to cut production. Since May last year, they have agreed to cut their production by 9.7 million barrels per day. And since August of this year, the alliance has been increasing production by 400 thousand barrels per day per month, hoping to gradually withdraw from its obligations by the end of September 2022.
The requests of the American leader look a little strange at once for several reasons. First, the crisis in the United States began in the summer due to a cyberattack on the Colonial Pipeline, the largest pipeline operator in the United States. As a result, the company shut down some systems to contain a threat that temporarily halted all pipeline operations and affected some information systems. The resulting panic has been compared to the crisis of the 1970s. And today the Americans, without energy guarantees, are simply purchased for future use. Plus, rising inflation doesn’t add to the Christmas joy. From summer to December, things could have been put in order.
Secondly, the November OPEC + decision was dictated by the balance of supply and demand, and Biden, whose statements today are threatening, should not be offended at all. Overseas, and so skimmed too much cream. Today, the United States is not only the largest consumer of oil, but also the largest producer. In different periods, the United States even overtook the Saudis and Russia in production. And while the cartel members were cutting their production, American companies were pumping oil and conquering new markets.
And today, given the new wave of coronavirus that is spreading around the world, America wants to release colossal volumes of oil, which, in the face of declining demand, will simply bring down quotes. According to the South China Morning Post, the United States, regardless of China’s decision, will start selling oil from its reserves this week.
Now oil is certainly reacting to verbal interventions coming from the White House. On the news of a possible increase in supply, the price of black gold dropped to a two-month low – below $ 78 per barrel. However, how long will the United States be able to reduce prices? First, it is unlikely that after everything that America has done “good” for China, the Celestial Empire will support the US proposal, just as all the five countries named 15 years ago did not support the same proposal of the Americans. Secondly, on December 2, the next OPEC + meeting will take place, at which, in the event of the start of sales of American oil, an unambiguous countermeasure will most likely be adopted.
The author is an expert of the Interindustry Expert and Analytical Center of the Union of Oil and Gas Producers of Russia (MEAC SNGPR), head of the Tekface project
The editorial position may not coincide with the opinion of the author