After OPEC+, say hello to SPR+

After OPEC+, say hello to SPR+

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I believe that writing a column to examine the current US energy policies is a waste of time to comment on. These policies are something that can’t be justified by economic logic and go against common sense.

However, I find myself writing this because there is an interesting development here in the wake of the 60 million barrels of oil released by the US from its strategic petroleum reserve in coordination with few other oil consumers such as Japan and India.

For five years now we have lived with OPEC+, an alliance of big global producers that was born in Algeria out of an oil crisis caused by the US shale oil producers on one hand, and by OPEC keeping oil prices high for a long time on the other. OPEC+ replaced the Organization of the Petroleum Exporting Countries on the global energy scene with Russia sharing the leadership of the alliance with Saudi Arabia.

Now, we are seeing the development of another interesting alliance i.e. SPR+, a group of big oil consumers led by the US, who think they can impact a 100-million-barrels-a-day market with 2 million barrels a day they can release, which Goldman Sachs described as “a drop in the ocean.”

What I don’t understand is that SPR+, which used to focus on supplying consumers at times of supply crisis, is becoming price-focused and acting more like a cartel that collaborates and uses the supply of oil to influence prices. This is something against all the declared US principles. 

To be honest, it would be illusional for any of the two alliances to think that they can control prices. Oil prices are in the hands of the market and the best they can do is influence the market.

Yet it’s really worrying to see how the use of SPR is moving away from the sole purpose that it was created for, which is to respond to supply crisis, and instead it’s being used to respond to price movements. Yes, the end result is to make sure that consumers don’t suffer, but the market should set the prices based on supply and demand, not on political factors such as voters’ anger.

The other thing that I don’t understand is how can the current US administration continue without clear short- and medium-term strategies for the oil market. All these net-zero carbon plans are something for the long term, and it can’t take care of the few years ahead. You can’t solve high oil prices by shying away from oil and leaving it to other producers, while pretending you care for the environment.

Well, if you force American companies to cut their production while you make sure that this amount is compensated by Saudi Arabia, Russia and the rest of OPEC+, then that’s not called saving the environment and combating global warming, it’s called “let’s look good by making others look bad.”

 

 

I also find it hard to believe that Bob McNally still applies the same wisdom today that he used to apply 20 year ago, when he used to advise former President George W Bush. The US used to call Saudi Arabia to increase production because the marginal barrels were in OPEC back then.

Today, we all know that the marginal barrels are coming from the US and other high-cost producers. If the US wants to see lower oil prices, then it must push for more production at home like what it did a few years ago during Obama and Trump times. 

With all due respect to McNally’s long experience, this logic won’t help because Saudi Arabia is working under an alliance and it can’t take unilateral decisions and abandon the agreed production plans with allies in OPEC+.

Anyway, I’m still puzzled by SPR+ especially when I see Japan is acting against its own laws that prevent it from using its SPR to tackle prices. I liked how China responded to all these US calls by saying that they will do that based on their own needs.

And what were the energy planners in the US thinking when they were releasing crude with sour quality from SPR at a time when refiners need more sweet crude?!

Last, I still can’t believe that a country like the US that has an armada of energy analysts and research houses, is taking such actions that are against the calls of all these smart people there who know the business more than anyone else in the world.

• Wael Mahdi is senior business editor at Arab News and co-author of “OPEC in a shale oil world: where to next?”

Twitter: @waelmahdi

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