A Syrian soldier is seen in an oil field in the countryside of Qamishli, northeastern Hasakah province, Syria, on Nov 5, 2019. (STR / XINHUA)
Western countries that release their spare oil capacity to ease prices should leave politics out of their decisions as the world needs to strike a balance between investing in renewables and dealing with underinvestment in the oil and gas sector, analysts say.
United States President Joe Biden announced on Oct 18 the release of 15 million barrels of oil from his nation’s strategic reserve, to complete the release of 180 million barrels that he approved in March to stabilize markets amid energy security fears linked to the impact of the Russia-Ukraine conflict.
With the US suffering from its highest rate of inflation in 40 years, critics say the move is designed to bring down pump prices ahead of the US midterm elections that are scheduled for Nov 8. The elections will decide the fate of Congress – currently dominated by the Democrats – state legislatures and governors’ offices
With the US suffering from its highest rate of inflation in 40 years, critics say the move is designed to bring down pump prices ahead of the US midterm elections that are scheduled for Nov 8. The elections will decide the fate of Congress – currently dominated by the Democrats – state legislatures and governors’ offices.
The Organization of the Petroleum Exporting Countries and its allies – OPEC+, –earlier angered Washington over their decision to reduce oil output by 2 million barrels a day from November, bringing Saudi-US ties into question.
“While the relevant decision of Saudi Arabia is related to its financial interests and the energy market, the decision of the US is political,” Gokhan Ereli, Gulf Studies coordinator at the Center for Middle Eastern Studies in Türkiye, told China Daily.
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He said that although Biden is “trying to solve a foreign policy problem” before the midterm elections through the strategic petroleum reserve, or SPR, finding a middle ground with the big oil producers in the medium and long term “will be one of the biggest issues of the Biden administration and the future US administrations”.
In March, the International Energy Agency’s 31 member countries, mainly the US and European nations plus Japan and South Korea, pledged to release 62.7 million barrels of oil from emergency reserves, followed by an additional release of 120 million barrels in April, in response to the impact of the Ukraine-Russia conflict.
Oil prices climbed in February in the wake of the conflict before hitting more than $100 a barrel in March.
At the Future Investment Initiative event in Riyadh last week, Saudi Energy Minister Prince Abdulaziz bin Salman took aim at Western governments that have released millions of barrels of crude to ease prices and accused them of trying to “manipulate” prices, the Wall Street Journal reported.
Syed Muhammad Osama Rizvi, an energy and economic analyst at data monitor Primary Vision Network, told China Daily that he believes the release of strategic petroleum reserves “is not a long-term solution”.
“If anything, it is not a solution at all,” said Rizvi. “The whole point is that in order to quell the fears of an impending supply crunch, the world needs to assure more oil production. However, given the climate imperative, we cannot do it with as much ease as we could have few years ago. That's the dilemma,” he added.
According to the US Office of Cybersecurity, Energy Security, and Emergency Response, the SPR, the world’s largest supply of emergency crude oil, was established to reduce the impact of disruptions in supplies of petroleum products and to carry out obligations of the US under the international energy program.
“The federally-owned oil stocks are stored in huge underground salt caverns at four sites along the coastline of the Gulf of Mexico. The sheer size of the SPR (authorized storage capacity of 714 million barrels) makes it a significant deterrent to oil import cutoffs and a key tool in foreign policy,” its website read.
But domestically, the Biden administration’s recent decision was also met with objection.
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On Oct 19, the Independent Petroleum Association of America, which claims to have been representing independent oil and natural gas producers for more than 90 years, announced its opposition to “draining the nation’s SPR”.
“The (SPR) is meant to protect consumers against emergency supply disruptions, not politicians during an election year,” IPAA President and CEO Jeff Eshelman said in a statement.
He said the IPAA has long held the position that the SPR should not be used to manipulate the crude oil market or product markets and that the reserve is America’s “first line of defense” against a major disruption in domestic petroleum supplies. Further, releasing more oil from the SPR “is a short-term fix for prices at best”.
Yesar Al-Maleki, an energy expert and Gulf analyst at the Middle East Economic Survey, an energy publication in Cyprus, said the potential additional SPR releases come in “politically tumultuous times”, citing the US midterm elections, Europe’s ban on Russian oil imports and the G7 group’s price cap plans.
The G7 nations — Canada, France, Germany, Italy, Japan, the UK and the US — along with the European Union, in September agreed to a Russian oil price cap, to curb Moscow’s revenues.
The OPEC+ cut, Al-Maleki said, is expected to reduce 800,000 barrels per day to 1 million barrels per day of supply given that years of underinvestment in capacity “has held OPEC producers from fulfilling their quotas”.
The IEA said in a June report that while oil and gas investment is up 10 percent from last year, it “remains well below 2019 levels”.
It also said that today’s oil and gas spending is “too high for a pathway aligned with limiting global warming to 1.5 °C” but “not enough to satisfy rising demand in a scenario where governments stick with today’s policy settings and fail to deliver on their climate pledges”.
At the 38th edition of the Abu Dhabi International Petroleum Exhibition Conference on Oct 31, Sultan Al Jaber, the United Arab Emirates’ Minister of Industry and Advanced Technology, called for “maximum energy with minimum emissions” to ensure global energy security.
If this year “has taught us anything”, it is that energy security “is the foundation of all progress”, he said, according to the Emirates News Agency.
“The world needs all the solutions it can get. It is not oil and gas, or solar, not wind or nuclear, or hydrogen. It is oil and gas and solar, and wind and nuclear, and hydrogen. It is all of the above, plus the clean energies yet to be discovered, commercialized and deployed,” said Al Jaber, who is also managing director and group CEO of Abu Dhabi National Oil Company.
Xinhua contributed to this report.