Diplomacy. When the United States and China join forces to lower oil prices

It is an alliance of circumstance which is surprising. The two superpowers of the world, whose rivalry should punctuate the twenty-first century, meet to try to influence oil prices.

The White House, at the origin of the movement, let it be known that it would draw on strategic oil reserves. 50 million barrels of black gold will be released over the next few months (out of 600 contained in strategic reserves).

“This is a major initiative that will make the difference,” said President Joe Biden on Tuesday evening. The goal is to lower prices at the pump: the cost per gallon (3.78 liters) has climbed 60% in one year in the United States, to reach 3.41 dollars, according to the AAA Automobile Association.

The initiative makes … the courses jump

The price of a barrel, which fell below 20 dollars at the height of the epidemic, has since continued to climb until it reached the level of its peaks at the end of 2018. Prices are currently around 80 dollars.

And Joe Biden’s announcement … paradoxically made prices jump (+ 3.27% for a barrel of Brent from the North Sea).

The equivalent of three days of US consumption

“The market reacts like this because between the headlines and the reality, there is a difference,” said Andy Lipow of Lipow Oil Associates. The analyst noted, to put the impact of the measure into perspective, that 50 million barrels represents only a fraction of annual American consumption, since this amounts to 19.5 million barrels per day: they therefore correspond “to three days of demand from American refineries”.

“The headlines are about a release of 50 million barrels, but in fact (…) 18 million will be sold in the market, while the remaining 32 million is an ‘exchange’, that is -to say that they will have to be reimbursed later, more expensive, ”explained Andy Lipow. A large part of the American reserves spilled are therefore only a loan and will have to be replenished.

And China, how many divisions?

Another uncertainty is that the contribution of other countries to this coordinated initiative is still obscure.

Other oil-consuming nations such as China, India, Japan, South Korea and the United Kingdom will also release part of their strategic reserves. “We do not know how much China will contribute but I think it will be small, because unlike the United States, they are large importers of oil,” said James Williams.

The measure should therefore have a limited and short-term impact on prices, even if symbolically and psychologically, it is not trivial.

Source: Le Progrès : info et actu nationale et régionale – Rhône, Loire, Ain, Haute-Loire et Jura | Le Progrès by www.leprogres.fr.

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