Oil extends drop on signs US, China, Japan will release reserves

Speculation is mounting that a coordinated release of oil reserves is on the way to combat accelerating inflation.

The Biden administration wants oil-producing nations to release stockpiles to tame soaring energy prices [File: Charlie Riedel/AP]

Oil extended declines — after four weeks of losses — on signs the U.S., China and Japan are all preparing to tap national crude reserves as concerns over accelerating inflation intensify.

Futures in New York fell below $76 a barrel after losing almost 6% last week. U.S. President Joe Biden has been talking about a possible release from the Strategic Petroleum Reserve for several weeks, and the Yomiuri newspaper reported over the weekend that Tokyo may make a joint announcement on the issue with Washington as soon as this week.

China indicated last week that it was working on another sale from its national inventories.


The return of virus restrictions in Europe, meanwhile, suggests there could still be a threat to global energy demand from a resurgent Covid-19. Austria goes into a full lockdown on Monday, while Germany and other nations are cracking down on the unvaccinated as cases spike.

Oil has fallen from a high in late October as speculation the U.S. and other countries would release reserves increased.

Any national sales will need to be pretty substantial to move prices further, with Goldman Sachs Group Inc. saying last week that the impact of around 100 million barrels of reserves auctions was already priced into the market.


United States President Joe Biden and Chinese President Xi Jinping discussed a coordinated release of oil reserves during their virtual summit last week [File: Tingshu Wang/Reuters]
An internationally coordinated release would, however, send a powerful message to the OPEC+ alliance, which has so far resisted calls to restore supply faster. Biden and Chinese President Xi Jinping talked about the merits of utilizing strategic reserves during their summit last week.

“The U.S. has been talking for a few weeks but they have done nothing,” said Vandana Hari, founder of Vanda Insights, referring to the release of strategic reserves. “The fact they did not do it at multi-year peaks is a sign they’re unlikely to make the move. Oil prices are sliding due to the outbreaks in Europe, that means pressure is already easing.”

Japan’s Oil Stockpiling Act doesn’t allow for the sale of reserves due to high prices, but both the government and the private sector currently hold more reserves than the minimum required under the law, according to the report in Japan’s Yomiuri newspaper, which cited government sources.

Tokyo is considering releasing part of these excess reserves, which it believes can be sold without breaching legal restrictions, it said.

Source: Bloomberg