Joe Biden is persuading China to push down oil prices together by printing out safety stocks. Washington is ready to agree to such an alliance after Russia and Saudi Arabia, within the framework of OPEC +, refused Biden to increase production beyond the plan. Why are Americans so nervous about $ 80 oil and will the US have the strength to carry out its plans?
The US is making plans with China to bring down oil prices by unsealing stra-tegic reserves as opposed to Russia and Saudi Arabia and the rest of OPEC +, who raise quotas, but slowly, keeping oil prices high.
US President Joe Biden invited Chinese leader Xi Jinping to unseal part of the oil from strategic reserves. Energy supply is a “pressing issue” for both China and the United States, with “energy departments on both sides discussing the details,” a source assured the South China Morning P-ost. Beijing is generally op-en on this issue, but has yet to make concrete commitm-ents. China told the US that it needs to take into account its own domestic needs.
The strategic reserves of the United States are 727 m-illion barrels of oil, China’s – about 200 million barrels. The release of some of these reserves could have a significant impact on world prices. The South China Morning Post believes that Washington is likely to announce the release of reserves next week, even if Beijing does not support it, TASS reports.
Will the United States and China be able to unite to oppose the OPEC + cartel, which includes Russia and Saudi Arabia? Since the summer, the United States has been trying to put pressure on OPEC so that the organization begins to actively increase oil production. However, at a regular meeting in early November, the cartel decided not to rush things and keep the existing plan for a gradual increase in production by its members.
Why are the US and China so nervous about oil under $ 80, after all, there have been times and more expensive fuel? With China, everything is clear. It is the largest importer of oil, and the cheaper it is, the better the Chinese economy. “For China, like other net oil importers, high prices for black gold are unprofitable primarily because they provoke cost inflation and slow down the rate of economic growth. Given the high debt burden of certain sectors of the PRC’s economy, in particular the real estate sector, a slowdown in economic growth may lead to the realization of credit risks and an increase in cases of insolvency similar to those of Evergrande,” notes Anna Zaitseva, analyst at FG Finam.
“China is a factory in the world that needs energy. The more expensive energy resources are, the more ex-pensive production is. This translates into an increase in prices, which leads to a drop in demand for the products of the “factory”, – says Vladimir Ananyev, an analyst at EXANTE.
In the United States, until recently, they were shouting about the shale revolution and providing themselves with hydrocarbons, but little remained of the revolution. The President relies on green energy and does not support local oil and gas production. He is not worried about how the oil workers will survive, but the rise in the price of gasoline inside the country and the acceleration of inflation worries. Because Joe Biden’s voters don’t like it.
“Growing oil leads to higher prices for fuel at US gas stations. This increases transport costs, and the consumer receives inflation on the shelves in the form of goods that have risen in price,” Ananyev believes.
“The rise in oil prices provoked a record acceleration of inflation in the United States over the past 30 years, which reached 6.2% in October,” Anna Zaitseva emphasizes. Like China, the US runs the risk of losing buyers due to too sharp price increases.
“Adding at double-digit annual rates, US fuel prices are approaching record all-time highs. This negatively affects the approval rating of US President Biden. Such political pressure ma-kes us look for solutions or pretend to be searching,” – explains Alexander Kuptsikevich, lead analyst at FxPro.
Washington could once again give the green light to shale projects and stop repressing the oil industry with a green agenda. But while the Democrats are in power, this is unlikely to happen, Ananyev said.
Attempts by the United States to push on OPEC + did not work, so Washington started talking about listing oil reserves and even banning exports. Unlike the United States, which takes a long time to decide whether to print out oil reserves or not, China is already doing this without the Americans. In fact, China started selling oil from strategic reserves back in July with the aim of driving down fuel prices and supporting national refineries, and in September held its first public oil auction.
The United States is hesitating, probably because it does not have so many oil reserves, and it simply will not be able to bring down prices for a long time. This stock of 700 million US barrels would be enough for just a month of life at the current level of daily consumption. At the same time, there is no talk of selling all reserves.
With the release of 15 to 48 million barrels of oil, one should expect a decline in prices by two dollars per barrel and a fall in gasoline prices in the United States by 5-10 cents per gallon (about 3.7 liters), he said. O. Stephen Nelly, head of information management at the Ministry of Energy of the country. According to him, the “scale of influence” of such a decision “will be relatively short-lived” and may last only a few months.
Kuptsikevich agrees that these threats are not critical: earlier in September we already saw oil sales from the reserves of the United States and China, and this was enough for only a few days, after which the quotes began to grow again. “Much more attention should be paid to the balance of supply and demand. Mr. Market is a much more efficient player than the governments of the consumer countries,” he said.
Moreover, the reserves were not created for this at all.
“Oil reserves are needed for emergencies when there are supply disruptions. The current situation does not apply to emergencies: there is oil, it’s just expensive,” – Ananyev notes.
It is possible that US threats will remain verbal interventions. Trying to find an ally in China can also be a manipulative game. Either Washington really believes that together, the fall in oil prices could be sustained longer. And then other factors would have arrived, knocking down the cost of fuel. The fact is that at the beginning of next year, an oil surplus is expected on the world oil market. “The latest data on reserves and production gives rise to hopes that the point of balance between supply and demand is already close, if not already passed,” says Kuptsikevich.
In addition, Iranian oil may soon appear on the market. Negotiations on the Tehran nuclear deal will resume at the end of November. If the United States lifts sanctions on Iran, and Biden is clearly interested in this, then the Iranians will drive down prices. If Europe is also covered by a new wave of covid, then demand will fall, and this will further increase the negative mood in the oil market, Zaitseva notes. As a result, the US will get what it wants – a lower price for oil and gasoline.
Here, the OPEC + countries will have to think about what to do depending on the price dynamics. “But it will not be possible to inflict a critical blow on our income, since we have already compensated a lot. The average oil price in 2021 is already above $ 70 per barrel, against $ 64 in 2019, that is, it already exceeds the dock level. And if we take into account the fall in the ruble since the end of 2019, then the budget has nothing to complain about at all,” Ananyev notes. Russia has also accumulated reserves to record levels.