Artificial tightness

Summary:

  • President Joe Biden announced the first-ever coordinated oil release between the United States, India, China, Japan, South Korea, and the United Kingdom.
  • Oil prices have risen more than 50% this year, reaching multi-year highs as demand has outstripped supply.

‘Artificial Tightness’ in Energy Sector

Some countries have failed to adopt a supportive stance to calm surging oil and gas prices, according to the chairman of the world’s largest energy body. The head of the International Energy Agency slammed “artificial tightness” in the energy market.

Fatih Birol stated the reason “A” that contributed to the high pricing is the status of certain of the major oil and gas suppliers. Furthermore, certain nations did not take a helpful posture in this context, in their opinion,” remarked the IEA’s executive director on November 24th.

In reality, some of today’s market’s significant strains could be classified as artificial tightness. This is because it is estimated that the key producers, OPEC+ countries, have close to 6 million barrels per day of spare production capacity.

His remarks come as energy analysts examine the efficacy of a US-led plan to release oil from strategic reserves to stifle rising petrol costs.

President Joe Biden announced the first-ever coordinated oil release between the United States, India, China, Japan, South Korea, and the United Kingdom.

The Strategic Petroleum Reserve will be depleted by 50 million barrels. 32 million barrels will be exchanged over the following few months, while 18 million barrels will be a previously permitted sale that will be accelerated.

In recent months, OPEC and non-OPEC producers, together known as OPEC+, have consistently ignored the US calls to increase production and lower prices.

Fresh and non-documented war for price

Oil prices have risen more than 50% this year, reaching multi-year highs as demand outstrips supply. The price rally’s strength has prompted some pundits to expect a return to $100 per barrel of oil, albeit this view is not shared by everyone.

On Monday afternoon in London, international benchmark Brent crude futures were trading at $82.27 a barrel, down around 0.1 percent. West Texas Intermediate crude futures, on the other hand, were unchanged for the session at $78.47.

“In the oil market, a new and uncharted form of price war is building,” Louise Dickson, senior oil markets analyst at Rystad Energy, said in a research note on Wednesday.

“The world’s largest oil consumers have vowed an unprecedented and relatively large release of strategic reserves onto the market to alleviate rising oil prices amid the recovery from the pandemic.”

It would be helpful, according to Rystad Energy, if the oil set to be released from the United States, China, India, Japan, South Korea, and the United Kingdom began soon. It may be enough to exceed crude demand as early as next month.

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