U.S. to release 50 mn barrels of oil to ease soaring oil prices

Tags:

President Joe Biden ordered 50 million barrels of oil released from America’s strategic reserve to help bring down energy costs, in coordination with other major energy consuming nations, including India, the United Kingdom and China.

• India announced it would release 5 million barrels from its strategic reserves.
•  The British government confirmed it will release up to 1.5 million barrels from its stockpile. 
• It is basically a symbolic measure by the large oil consuming countries to the major oil cartel OPEC+ , signaling their disapproval of the high crude oil prices in the market .

Oil on Fire

•  The international benchmark, Brent crude, has crossed the $70 a barrel,   while the U.S. benchmark, West Texas Intermediate, was quoting at $68.50 a barrel. Both prices were the highest since October 2018.

 OPEC+ and its role in oil price rise 

Oil price like any commodity is determined by the dynamics of demand and supply. World’s major economies are oil importing, with China being the largest oil importer in the world followed by the United States, India, South Korea, Japan, and Germany.

The major suppliers of oil in the world are Saudi Arabia, Russia, Iraq, United States and United Arab Emirates.

• Many of the top oil exporting countries are part of an International organization called OPEC(Organisation of Oil Exporting Countries ). In 2016 it formed an alliance with other major oil exporting countries which were not members of OPEC as OPEC Plus or OPEC+.
• OPEC+ controls around 50%of the world oil supply and 90% of proven oil reserves .The main aim of the OPEC plus is to control the world oil price by increasing or decreasing the production of the crude oil so as to influence the supply of oil prices in the world.
• As a cartel, the OPEC+ member countries collectively agree on how much oil to produce, which directly impacts the supply of crude oil in the global market at any given time.
•  After the corona pandemic which ravaged the world economy in 2020 ,the world economic growth prospect is improving . According to the latest International Monetary Fund  (IMF) projection, the world economy is likely to grow by 5.9% in 2021 and by 4.9 % in 2022.This has boosted the demand for oil in the world market. 
• The OPEC+ countries are not increasing the production of oil as desired by the major oil importers like India, U.S ,China etc as it is boosting their revenue .
•   On the other hand the persistent increase in oil price is  creating inflationary pressure in all the oil importing countries.This is creating problems for these governments. 
•  The release of oil from the strategic reserves is at best a token gesture as it is not going to impact the supply situation.
• Already China has refused to release oil form its reserves while the OPEC+ has turned down the demand of the U.S government.

 OPEC(Organization of the Petroleum Exporting Countries)

• It is an International organisation of petroleum  oil exporting countries  
•  It was created at the Baghdad Conference in 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. They are the founding members  of OPEC. 
• Later on many countries joined and left the organisation 
• At present there are 13 member countries Algeria,Angola, Congo,Equatorial Guinea, Iran, Iraq, Kuwait , Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela .
• The last country to leave the organisation was Qatar in 2019.
• The headquarters of the OPEC is in Vienna (Austria).

 OPEC +

•  Plus denotes those countries who are also oil exporting countries but are not the member of the OPEC
• They are  Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.

Strategic Petroleum Reserve Programme of India 

• The Strategic Petroleum Reserve is an emergency stockpile to preserve access to oil in case of natural disasters, national security issues and other events.
• Under Phase I of strategic petroleum reserves (SPR) programme, Government of India, through its Special Purpose Vehicle, Indian Strategic Petroleum Reserve Limited (ISPRL), has established petroleum storage facilities with total capacity of 5.33 Million Metric Tonnes (MMT) at 3 locations, namely (i) Visakhapatnam   (1.33 MMT), (ii) Mangaluru (1.5 MMT) and (iii) Padur (2.5 MMT).
• Under Phase II of the petroleum reserve programme, Government has given approval in July 2021 for establishing two additional commercial-cum-strategic facilities with total storage capacity of 6.5 MMT underground storages at Chandikhol (4 MMT) and Padur (2.5 MMT) on PPP mode.