Coordinated SPR release could prompt OPEC + to withdraw crude oil spike: sources

Strong points

OPEC + has the option of delaying monthly increases by 400,000 bpd

Weighing of the United States SPR with other consuming countries

Stricter lockdowns as crude drops below $ 80 / bbl also need to be watched

OPEC and its allies are expected to maintain their policy of increasing crude production by 400,000 bpd next month, but if consuming countries release barrels from their strategic reserves, the producing bloc could re-evaluate its options, have said. some delegates told S&P Global Platts.

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The OPEC + alliance is due to meet on December 2 to decide on January production levels, as the United States has hinted it could coordinate a release of crude from strategic reserves with Japan, China, India. and other countries, in order to lower oil prices. endangered the global economic recovery from the pandemic.

Speculation on the crude exit helped Dated Brent drop below $ 80 / bbl, after hitting three-year highs above $ 85 / bbl in late October.

“There is currently no concern that the United States and China are releasing crude from strategic reserves because if the market were to be in surplus, OPEC + has the option of not increasing or reducing production. “said one delegate, asking not to be named to discuss private proceedings.

His comments were echoed by the Secretary General of the International Energy Forum, Joe McMonigle, who is in frequent contact with OPEC + ministers.

A further increase in coronavirus lockdown measures in Europe could also prompt the OPEC + alliance to delay or suspend its planned production increases, he said on November 22.

A drop in demand for oil linked to an increase in COVID-19 infections or a release of strategic reserves could add to what many forecasters, including OPEC, the International Agency for Energy and the Energy Information Administration predicted that this would be an oversupply by early 2021.

“In light of the current IEA, OPEC and EIA forecasts for a surplus in the first quarter of next year, I expect OPEC + Energy Ministers to maintain their current plan to gradually add more supplies to the market, ”McMonigle said in a statement. “However, some unforeseen external factors such as a release of strategic reserves or further blockages in Europe may prompt a reassessment of market conditions.”

OPEC + countries aim to eliminate historic production cuts they implemented in spring 2020 by the end of 2022 by increasing production by 400,000 bpd each month, although ministers have said that they could modify the agreement if market conditions warrant.

McMonigle said he spoke to Ono Hikariko, director general of Japan’s Bureau of Economic Affairs at the Foreign Ministry, about the impact of the recent spike in crude prices.

As the head of an organization founded to foster dialogue between oil-producing and consuming countries, McMonigle said market volatility was caused by a sharp decline in investment in the oil industry.

“There are increasing signs of scarcity today and in the years to come,” he said. “We need to keep making progress on tackling climate change, but I’m concerned that sharp increases in utility bills and transportation costs for consumers around the world are undermining public support for climate action.”

He said the IEF is closely monitoring the energy market and is planning a series of ministerial meetings “to enhance the efficiency, transparency and stability of energy markets and to combat climate change and promote fair and orderly transitions “.

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