The U.S. will release 50 million barrels of crude from its strategic reserves in concert with China, Japan, India, South Korea and the U.K. — an unprecedented, coordinated attempt by the world’s largest oil consumers to tame prices that could prompt a backlash by OPEC+.
Of that amount, 32 million will be released from the U.S. Strategic Petroleum Reserve as an exchange over next several months, while 18 million will come from an accelerated release from previously authorized sales, the White House said in a statement Tuesday. It represents one of the biggest releases ever from the reserve, surpassing U.S. interventions amid Libyan unrest in 2011 and Operation Desert Storm in 1991.
A senior administration official told reporters Tuesday that barrels would begin moving as early as mid-to-late December. The administration is prepared to take further, unspecified steps, if needed, the White House said.
Oil futures in New York pared losses to trade at $76.39 a barrel at 7:44 a.m. in New York after earlier falling as much as 1.9% as investors factored in that the bulk of the crude release will need to be returned to the reserve.
The decision by President Joe Biden to collectively discharge stockpiled crude after OPEC+ countries rebuffed calls to significantly boost production marks a diplomatic win for the U.S. and a challenge to the grip that Saudi Arabia, Russia and other OPEC+ producers have on the market.
But it’s not without risk. OPEC+ officials warned they’re likely to respond by canceling plans to boost their own production, negating the addition of stockpiled oil onto the market. The standoff sets up a fight for control of the global energy market.
The tussle threatens to roil the geopolitics of oil. At stake is the price of the world’s most important commodity as politicians and central bankers contend with the strongest inflationary surge in more than a decade. It also shows the strained relationship between Washington and Riyadh, traditionally a cornerstone of U.S. relations in the Middle East.
“The market focus has shifted from the release to how OPEC+ will respond to what the White House is calling a ‘message to the Saudis’,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official under President George W. Bush. “If it comes to a test of wills and capabilities between a handful of strategic oil reserve holders led by the U.S. and OPEC+, the market would probably bet on the latter prevailing.”
Under the plan, the U.S. will conduct the exchanges over several months, with oil companies taking possession of the crude now and then returning supplies to the reserve later, when prices have eased.
Senior administration officials said the two-pronged oil release plan, the result of months of discussion and diplomacy, is tailored to the current market conditions, with oil prices that are high now expected to dip in coming months.
The administration can also make adjustments to the exchanges in coming months as it deals with a dynamic oil market, the administration official said.
The administration has worked to identify the best tools for addressing the current dynamic, one of the officials said. It has so far rebuffed calls from members of Biden’s own party to clamp down on exports of U.S. oil, amid warnings that could backfire by actually discouraging domestic production.