Tuesday marked the official emergence of an “anti-OPEC+”.
That’s according to Rystad Energy’s senior oil markets analyst Louise Dickson, who described the newly emerged group as a set of top oil-consuming countries that are taking the supply-side dynamics into their own hands in the “unconventional and unprecedented” release of strategic petroleum reserves to create “artificial looseness” in the oil market.
“The orchestrated supply-side via SPRs is a last ditch effort after the U.S. was unsuccessful an influencing OPEC+ to release supply, an ongoing call since August,” Dickson said in a statement sent to Rigzone on Tuesday.
“The supply side support is intended to quell oil prices and keep pandemic GDP recovery on track, especially amid the backdrop of an increasingly inflationary macro environment,” Dickson added in the statement.
“[Tuesday’s] historic but very unorthodox move is a clear message to OPEC+ that it’s not the only actor on the global oil market stage. The coordinated effort represents the formation of an unofficial demand-side alliance that keeps OPEC+ in check if it fires up prices to a level seen as unsatisfactory to spur economic growth and keep consumer purchasing power in check,” Dickson went on to say.
The newly emerged group comprises the U.S., China, India, Japan, Korea and the UK, Dickson highlighted. In a separate statement sent to Rigzone on Tuesday, Rystad Energy’s head of oil markets, Bjornar Tonhaugen, noted that the total stock release numbers could exceed 60-70 million barrels. Dickson pointed out that the U.S. pledged 50 million barrels of supply.
“The White House didn’t provide a chartered schedule for the release, but some of the barrels will be hitting the market as early as December,” Dickson said.
“Much of the downward price impact has already been priced into the futures curve over the past week since China announced it was ready to cooperate following the Xi-Biden summit,” Dickson added.
Dickson went on to say that the threat of more supply in the short-term certainly creates an artificially looser oil market for the next one to two month period but added that the move by Biden and other leaders may just be pushing the supply issue down the timeline.
“Emptying out storage will put even further strain on already low oil stockpiles … these countries will eventually have to go on a buying spree to refill the strategic reserves,” Dickson said.
“The tug of war between producers for higher prices and consumers for lower prices can only lead to a very volatile price environment in 2022,” Dickson added.
The Million Dollar Question
The million dollar question is how OPEC+ may respond to the newly emerged group’s move, according to Tonhaugen.
“We expect OPEC+ to discuss their production agreement in more detail next week, and this latest development will clearly play into the design of any new production agreement, in addition to the uncertainties about the demand outlook,” he said in the statement sent to Rigzone.
“The coming OPEC+ meeting is to be watched closely as it could offer an interesting supply poker game ahead. If the move is seen as aggressive by OPEC+, the group could in theory even cut back supply into January to maintain its profits,” Tonhaugen added.
Tonhaugen noted that Tuesday’s events are unprecedented at scale when looking at the recent history of the oil market.
“It is the first time that these countries, including China, conduct a coordinated release,” he said. “The last time we saw a similar coordinated plan was during the Libya civil war in 2011, when IEA countries moved to release reserves together, but it was excluding China,” Tonhaugen added.
The 23rd OPEC and non-OPEC Ministerial Meeting is currently scheduled to be held on December 2. At its previous meeting in November, OPEC+ reconfirmed its production adjustment plan and its decision to adjust its monthly overall production up by 400,000 barrels per day for December.
