US asks Japan, China and others to consider tapping oil reserves to lower prices: Sources

Global oil prices touched seven-year highs in late October as oil demand has rebounded nearly to pre-pandemic levels. PHOTO: REUTERS

WASHINGTON (REUTERS) - The United States has asked some of the world's largest oil consuming nations - including China, India and Japan - to consider releasing crude stockpiles in a coordinated effort to lower global energy prices, according to several people familiar with the matter.

The unusual request comes as US President Joe Biden fends off political pressure over rising pump prices and other consumer costs driven by a rebound in economic activity from lows plumbed early in the coronavirus pandemic.

It also reflects US frustration with members of the Organisation of the Petroleum Exporting Countries (Opec) and its allies who have rebuffed repeated requests from Washington to speed up their production increases.

"We're talking about the symbolism of the largest consumers of the world sending a message to Opec that 'you've got to change your behaviour,'" one of the sources said.

In Asia, oil prices extended declines on Thursday (Nov 18), prompted by the US request, after settling on Wednesday further below seven-year highs struck in early October.

US crude was down 84 cents, or 1.1 per cent, at US$77.52 a barrel by 0348 GMT, having fallen 3 per cent overnight. Brent crude fell 44 cents, or 0.6 per cent, to US$79.84 a barrel after falling 2.6 per cent to the lowest close since early October on Wednesday.

Mr Biden and top aides have discussed the possibility of a coordinated release of stockpiled oil with close allies including Japan, South Korea and India, as well as with China, over the past several weeks, the sources said.

The US and allies have coordinated strategic petroleum reserve releases before, for example in 2011 during a war in Opec member Libya.

But the current proposal represents an unprecedented challenge to Opec, the cartel that has influenced oil prices for more than five decades, because it involves China, the world's biggest importer of crude.

A Japanese industry ministry official said the US has requested Tokyo's cooperation in dealing with higher oil prices, but he could not confirm whether the request included coordinated releases of stockpiles. By law, Japan cannot use reserve releases to lower prices, the official said.

China's state reserve bureau said it was working on a release of crude oil reserves although it declined to comment on the US request.

A South Korean official confirmed the US had asked Seoul to release some oil reserves.

"We are thoroughly reviewing the US request, however, we do not release oil reserve because of rising oil prices. We could release oil reserve in case of supply imbalance, but not to respond to rising oil prices," the official said.

The US share of any potential release of reserves would need to be more than 20 million to 30 million barrels to affect markets, according to a US source who participated in the discussions. Such a release could be in the form of a sale or a loan from the US Strategic Petroleum Reserve (SPR) - or both.

The SPR was set up in the 1970s after the Arab Oil Embargo to ensure the US has adequate supply to weather an emergency.

Several people familiar with the matter cautioned that negotiations over a coordinated supply release have not been finalised nor has any final decision been made about whether to pursue any specific course of action on oil prices.

The White House declined to comment on the detailed content of conversations with other countries.

Opec and other producers including Russia, known collectively as Opec+, have been adding around 400,000 barrels per day to the market on a monthly basis, but have resisted Mr Biden's calls for more rapid increases, arguing the rebound in demand could be fragile.

Opec secretary general Mohammad Barkindo said on Tuesday he expected a global supply surplus to emerge as soon as December.

"These are signals that we have to be very, very careful," he told reporters.

Rising oil prices have vexed Mr Biden ahead of the 2022 midterm elections which will determine whether his Democratic party maintains slim majorities in the US Congress.

US gasoline prices average US$3.41 per gallon recently, according to AAA, more than 60 per cent higher than a year ago as the economy rebounded from the Covid-19 pandemic.

Several Biden aides attribute his falling public approval ratings in recent months to worsening inflation from energy to food and other areas. The consumer price index is up 6.2 per cent over the last 12 months, with its energy components up 30 per cent.

The Paris-based International Energy Agency, which monitors national SPRs for members, declined to comment. The IEA in the past had coordinated releases involving several countries.

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