OPEC+ has issued a grave warning to Japan, the United States, China, India, and South Korea: unleash millions of barrels of oil from your emergency stockpiles, and we are likely to respond.
That response, although OPEC+ failed to mention specific figures, would likely be changing their plans to ramp up production more slowly to compensate for the extra barrels released.
History has shown that OPEC+ members are willing to do whatever it takes to maintain their market share and keep prices within an ideal range. In 2020, right before the pandemic, Russia and Saudi Arabia engaged in a tit for tat involving oil production and exports—switching to a pump at will policy that flooded the market with oil because the two oil titans couldn’t agree on a strategy.
The result was devastating for the markets, which shortly thereafter had to grapple with severe oil demand destruction courtesy of the pandemic.
So it’s not far-fetched to imagine that this latest threat—aimed mostly at the United States, which is largely behind what most expect would be a coordinated release of oil barrels from several counties’ SPRs—is not an idle one.
OPEC+ delegates, according to Bloomberg, said this week that releasing millions of barrels from major oil consumers’ SPRs is not supported by market conditions.
OPEC+ has been saying for over a month that the market will soon swing into a surplus, cautioning global oil markets against being too hasty and aggressive when it comes to ramping up production.
But immense pressure is building up on consuming nations over high gasoline prices—particularly in the United States, where gasoline prices often directly correlate to voter support for the current administration.
These high gasoline prices have been a sore spot for the Biden Administration, which has been caught between pressure for green initiatives and pressure to take steps that would lower gasoline prices.
OPEC+ will meet next week to discuss their production plans for the following month. OPEC+ now says that the group may reconsider its plans to add additional production.
By Julianne Geiger for Oilprice.com
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