The US and other countries launch an unprecedented offensive to bring down oil prices

In an unprecedented alliance, the United States and other countries, including China, will make use of their strategic oil reserves to try to cause a drop in the prices of this commodity – announced the White House on Tuesday (23).

President Joe Biden said today that he had ordered the release of 50 million barrels of oil from US strategic reserves.

“This decision will be taken in parallel with other nations that have significant energy consumption, such as China, India, Japan, the Republic of Korea and the United Kingdom,” said the White House.

The decision comes at a time when prices at gas stations continue to rise in the United States. This picture poses a major political problem for Biden, especially on the eve of Thanksgiving, the holiday on which Americans travel to reunite with their families.

Presented as unprecedented by the Americans, the joint initiative seeks to make prices fall mechanically in view of the increase in supply.

Crude oil rose amid economic reactivation in the wake of the lifting of restrictions by the covid-19 pandemic.

In view of the rumors of this coordinated operation, prices have fallen by around 10% in recent days. This Tuesday morning (23), however, the market barely reacted and, at 10:00 am (Eastern time), the drop was only 0.39%, compared to the closing of the American WTI barrel the day before.

In the previous three months, between August 19th and November 22nd, WTI had increased by 20.5%.

To reach that deal, Washington and Beijing put their rivalry aside, as China is also one of the world’s biggest oil consumers.

Consumer poster

Attempts by the United States to pressure producing countries, especially Saudi Arabia, to increase their supply so far have not worked.

Louise Dickson, an analyst at Rystad Energy, explains that “this historic and unorthodox move is clearly a message that tells OPEC (Organization of Petroleum Exporting Countries) that it is not the only player in the oil market.”

“This coordinated effort forms an informal alliance on the side of consumer countries,” in response to the cartel of producing countries, he says.

The president of the United States is also targeting large companies in the sector, accused of transferring only high prices to gas stations, while recording gigantic profits.

A few days ago, the White House asked the competition authority to rule “immediately” on the “possibly illegal” behavior of oil companies, and does not rule out lawsuits.

US reserves are the largest emergency stockpile in the world.

According to a high-ranking US government official, the release will begin between mid and late December. It is possible that new interventions to stabilize the market will be made, “in response to a pandemic only in a century”.

“As the president said, consumers are now suffering at gas stations,” added the same source.

“The president is ready to take additional action if necessary and is prepared to use all his authority, working in coordination with the rest of the world to maintain adequate supplies as the pandemic is left behind,” he added.

Of the 50 million barrels that the United States will release, 18 million will be sold directly in the coming months. The other 32 million will enter the market on an “exchange” basis, as they will be returned to reserves in a few years.

US reserves are stored in underground locations in the states of Louisiana and Texas, with 714 million barrels, according to a report released by the Department of Energy in late August.

It is quite unusual for large quantities to be removed from there, except in an emergency. This is what happens, for example, when major hurricanes affect the Gulf of Mexico, which is crucial for oil production, or in response to international crises.