Tapping stockpile may not relieve fuel price pain

NEW DELHI: Fuel consumers are unlikely to get much relief as the United States move to rally world’s top oil consumers, including India, to tap into their emergency stockpiles may have unwittingly given OPEC+ a reason to maintain the current production course at its forthcoming review meeting on December 2.

An indication came on Thursday after the OPEC advisory committee meeting took the view that the coordinated release will “bloat the surplus” in the market. The grouping has so far rebuffed appeals, particularly from the US and India, to raise production, which resulted in the US call for a coordinated release of stocks by China, India, Japan and South Korea.

In case the OPEC+ decides to maintain the current production level, it will prolong the buoyancy in oil prices. OPEC is struggling to meet the target of adding 400,000 barrels/day each month agreed as part of a deal because several of its members are unable to meet their production quota. Rising demand from Asia, OPEC’s main market, will offset concerns over worsening Covid situation in Europe.

No wonder global benchmark Brent is back above $80/barrel as the market has seen through the US move. The release of emergency stockpiles is merely rebadging of swapping or selling part of the stock to earn extra barrels by way of interest or make money from arbitrage.

China is yet to announce its quantity. So far, at 50 million barrels, or roughly 10 days of India’s consumption, the biggest release is from the US. Media reports said part of this oil was earmarked for swaps or sale. Besides, the oil being released is ‘sour’ and may have to be exported as US refiners prefer ‘sweet’ crude when gasoline prices are high. That leaves the US with Asia, especially China and India, as the only viable market. It may not be easy due to high shipping costs.

Lastly, the released stocks will have to be replaced, which means the demand momentum will be maintained. All these are upside for oil prices. That means consumers will continue to pay through their nose.