SPR releases nothing but a flawed strategy for short-term gains

SPR releases nothing but a flawed strategy for short-term gains

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It was an important day for the oil markets as the US announced to release millions of barrels of crude from its strategic petroleum reserves to try to check rising prices. 

The US’ move comes in coordination with China, Japan, India, and South Korea, as all these countries made similar announcements.

President Joe Biden’s administration said it would release 50 million barrels from the country’s SPR, which will start hitting the market in mid to late December. 

Initial reports suggest a total of around 60 million barrels of oil from major OECD economies will hit the market. It would be pertinent to mention here that oil stock in the Organization for Economic Co-operation Development’s members in September stood at 206 million barrels below the latest five-year average and 374 million barrels lower than the same month last year.

These announcements may be perceived as burning bridges with the Organization for the Petroleum Exporting Countries and its allies, known as OPEC+. Some fear the oil producers’ alliance may respond strongly by cutting production to compensate for the SPR release, a move that is likely to result in oil prices shooting up.

However, the alliance, in its meeting next week, may likely agree to cut output to offset the impact of SPR release and maintain a balanced global oil market.

This will be a win-win situation for the oil producers’ alliance, as it can use the situation in its favor by cutting down production to balance out the market and remain in full control.

Releasing crude from strategic reserves may provide some relief in the short term but in the long run, it will only hurt economies and push oil prices further up.

Faisal Faeq

OPEC+ will meet next week to discuss plans for the output strategy for 2022. This huge flow of reserved crude comes as a huge relief for OPEC+ as some smaller oil producers in the alliance might be struggling to meet their respective production quotas.

The SPR releases have been already sold into the markets in recent weeks with little effect especially in the case of Asian refiners who are ramping up refining capacities to meet the demand for the winter season. 

Releasing crude from strategic reserves may provide some relief in the short term but in the long run, it will only hurt economies and push oil prices further up.

Intuitively, it does not look wise to release oil from SPR at oil prices around $80 a barrel while it was bought at $20 last year.

• Faisal Faeq is an energy adviser and columnist. He formerly worked with Saudi Aramco and OPEC Secretariat.

Twitter:@FaisalFaeq

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view