A lot of economies went down during the initial reign of terror of the coronavirus and the US is also a victim of that scenario with its oil prices going down big time. To counter this crisis, OPEC (Organization of the Petroleum Exporting Countries) and its allies agreed on historic production cuts to bring a harmony in the prices but this ended up in a position of two decade low. This led to impacting the costs of other production and manufacturing across the country, although this resulted in lowering the price of importing oil, costs in manufacturing as well as transport sectors.
Whereas, the oil companies in the country suffered from low oil costs that affected the domestic oil industry workforce. At the same time, high oil prices affected the overall cost of doing business and even the citizens were not spared as their livelihood become more expensive. This falls true to gasoline in particular, as the White House began feeling a slight pinch on their political body when its prices rose high, making them request some of the globally largest oil producers for extra oil.
For weeks the country was seen giving its request for extra oil to Saudi Arabia, which in vain was turned down. As Saudi’s Crown Prince, Mohammed bin Salman, a man who has the power to change the price of oil as well as the fortune of politicians in consuming nations, disagreed to the repeated requests of the US, as he was more concerned about the supply and demand fundamentals rather than the political needs of Washington.
“Saudi Arabia is in a great spot”, says Jason Bordoff, dean of Columbia School's Climate Change Institute and a former senior White House energy official under President Barack Obama. “Oil demand is rising, not falling; shale in the US isn't what it used to be, and the world will require more Saudi oil for the foreseeable future”.
The Reason for Extra Oil
The current problem, combined with the administration's aggressive congressional agenda for late summer and early fall, might jeopardize the administration's sluggish economic recovery, which is threatened by the Delta variant of the coronavirus.
Therefore, the administration had to make two crucial steps on gas pricing, with one of them being to persuade the Federal Trade Commission to look into market manipulation or anti-competitive behaviours affecting gasoline prices at the pump.
The other was the release of a document by national security adviser Jake Sullivan, in which he criticized OPEC+ countries' recent decision to increase output by 400,000 barrels per day monthly through December as just not enough to prevent jeopardizing the international economic recovery.
Trying to persuade OPEC+ to produce more crude oil, however, appears to be at odds with Biden's climate strategy, which calls for the US to move away from its reliance on fossil fuels. It was also a strange action coming only two days after the country’s Intergovernmental Panel on Climate Change (IPCC) published its most dire warnings yet about the consequences of human-caused global warming.
To achieve comprehensive climate policies while avoiding additional inflationary pressure, the administration is pressuring OPEC+ countries to increase fossil fuel production
According to Ellen Wald, an oil analyst, "there's regulatory ambiguity, and there's a sense that they'll run into opposition from the Biden administration. As a result, many manufacturers are deterred from creating, lowering American production”.
Therefore, some of the world’s largest energy consuming nations are now joining frces with the US to implement strategic oil reserves to cool down the prices of oil reserves as well as the inflation.
US and Others to Formulate Strategic Oil Reserves
Some of the world's largest energy consumers are joining a US-led push to unleash strategic oil reserves in an attempt to bring down high prices and keep inflation in check.
Following weeks of conversations to establish a plan to stop price spikes, the White House announced that China, Japan, India, South Korea, and the UK will join the project.
“We recognize that the rise in oil prices is placing a burden on consumers and has added to inflationary pressures during a period when the economic recovery remains uneven and faces a range of risks”, says the International Energy Agency, which monitors global oil supplies on behalf of the world's leading economies.
India has committed to release five million barrels at a time that is mutually agreed upon by the other five countries.
“India has often raised concern about oil producers unfairly adjusting supply below demand levels, resulting in higher prices and harmful effects”, responded the Indian government.
Several Indian state governments had previously taken tough steps to reduce local fuel tariffs. Despite the government's high fiscal burden, they were taken to bring relief to citizens.
South Korea said that the amount and time of its oil reserves release will be set in conjunction with other nations, but it is likely to be at a level comparable to prior international cooperation situations.
The UK government said it will allow corporations to voluntarily release up to 1.5 million barrels of oil reserves, calling the move a prudent and calibrated step to support global markets as we emerge from the pandemic.
On Japan’s side, the Prime Minister Fumio Kishida, confirmed that the country would release oil from its reserves.
“We've been working with the US to help stabilize the world oil market”, he said, adding that the country will do so without breaking any oil stockpiling regulations.
Stabilizing crude oil prices, according to Kishida, are critical to the economy's recovery from the coronavirus outbreak. He stated that more information on the timing and amount of oil will be released at a later date.
Despite efforts to combat climate change, the global economy remains as dependent on oil as it was prior to the pandemic. Global demand has returned to about 100 million barrels per day, the highest level since 2019.
The release of strategic reserves on Brent crude, the global oil benchmark, has surged back above $80 a barrel, and Saudi oil output is expected to reach 10 million barrels per day next month, well exceeding pre-Covid levels.