While the U.S. has granted its first release of SPR oil to Exxon Mobil Corp., and intends to issue another sale notice for 18 million barrels this week, there’s been radio silence from the other participants. That’s starting to prompt some skepticism in the market about whether they’ll go ahead at all, particularly after the omicron virus variant led to a sharp drop in global prices.
The Asian nations’ participation in what looks like a buyers’ cartel puts them in a tough spot, said John Driscoll, chief strategist at JTD Energy Services Pte.
“They can’t afford to jeopardize their relationships with major producers to satisfy a U.S. president who’ll be up for re-election in a few years,” he said. They may also “be reluctant to tap into their reserves ahead of peak winter demand, when supply disruptions can lead to major issues,” Driscoll said.
The joint release was unprecedented, given that there was no supply shock, and followed weeks of intensive lobbying by Biden after the OPEC+ alliance rebuffed calls to increase supply faster. It contributed to a decline in prices leading up to the announcement, but many in the market were underwhelmed by the volumes that the countries other than the U.S. pledged to release.
India was the only Asian nation that was definitive on volume, pledging to release 5 million barrels, although questions remain on timing. The head of Indian Strategic Petroleum Reserves Ltd. said Dec. 3 that he was still waiting for advice from the federal government on how and when to sell the crude.
Japan has given no details on volumes or timing, although the Nikkei newspaper reported last month the country would release around 4.2 million barrels. South Korea said on Nov. 23 that it would decide on details such as volume and timing after discussing with partner countries but indicated it would be about 3.5 million barrels.
China has been somewhat ambiguous, with Beijing not wanting to look like it was following the U.S. It said in November that it was working on a sale of oil from its reserves, just days after a virtual summit between Biden and President Xi Jinping. A Western official familiar with the matter initially said the Chinese could sell between 7 million and 15 million barrels. There have been no official announcements since.
A U.K. government spokesperson, meanwhile, said companies could choose to participate in the joint release if they wish. If all contribute, it would result in the equivalent of 1.5 million barrels being sold, the spokesperson said.
The White House referred to a Nov. 29 briefing at which Press Secretary Jen Psaki said the U.S. was encouraging any country, including China, to be “as transparent as possible in any of their policy maneuvers,” when asked about other nations releasing reserves.
The sharp omicron-driven drop in crude prices at the end of November may have reduced the urgency to act quickly. However, more than half of that plunge has now been recouped on signs the new variant may not be as bad as initially thought. Global benchmark Brent continued its relief rally on Monday, rising around 1% after gaining more than 7% last week.