Oil prices slide to six-week lows on Thursday as China said it was moving to tap its reserves and the United States signalled that it may open up its special emergency storage, asking large consuming nations to consider a stockpile release to lower rising prices.
The proposed action comes on the back of inflationary pressures fuelled by surging energy prices, especially the skyrocketing gas prices. The US reserves contains more than 600 million barrels of oil.
Thursday, Brent crude dropped to $79.28 while US West Texas Intermediate (WTI) crude also dropped to $77.08.
Oil prices had hit seven-year high in October as the market focused on the swift rebound in demand that had come with the lifting of lockdowns to halt the spread of the coronavirus.
However, the rally then was fuelled in part by the strategy of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, called OPEC+, to raise output only slowly.
China’s state reserve bureau said it was working on a release of crude oil reserves although it declined to comment on the US request, while a Reuters report quoted an unnamed Japanese industry ministry official as saying that the United States had requested Tokyo’s cooperation in dealing with higher oil prices.
The US has its own Strategic Petroleum Reserve (SPR), which can be tapped to push down prices or increase supplies as needed, but is also pushing for a wider coordinated response.
Nigeria with a far lower budget oil benchmark, has said that it was comfortable with a $50 to $60 oil price so as not to push its customers into looking for alternatives.
But the US’ unusual move follows a jump in gasoline prices, and the wider surge in inflation to a 30-year high. Having failed to persuade OPEC+ to speed up its production, the US is now looking to pile pressure on the group. In 2011, during a war in OPEC member Libya, the US deployed the same strategy.
In reaction, the prospect of more oil hitting the market has pushed Brent crude down below $80 per barrel to as low as $79.28, the lowest since early October, after falling sharply yesterday too.
In a similar vein, the Energy Information Administration (EIA), a US body which analyses industry data, Thursday predicted that oil prices will begin to decline this quarter and culminate in $66 per barrel by the last quarter of 2022.
“However, we forecast that global oil inventories will begin building in 2022, driven by rising production from OPEC+ countries and the United States and slowing growth in global oil demand. We expect this shift will put downward pressure on the Brent price, which will average $72/b during 2022.
“Spot prices of Brent, an international crude oil benchmark, and West Texas Intermediate (WTI), a U.S. crude oil benchmark, have risen since their April 2020 lows and are now above pre-pandemic levels.
“In October, the price of Brent crude oil averaged $84/b, and the price of WTI averaged $81/b, the highest nominal prices since October 2014. We expect that the price of Brent will fall from an average of $84/b in October 2021 to $66/b in December 2022 and the price of WTI will fall from an average of $81/b in October 2021 to $62/b in December 2022,” it noted.
Emmanuel Addeh in Abuja