The United States Triggered a Brief Selloff in Crude

Over the previous week, media stories about the United States, China, and Japan releasing millions of barrels of oil sparked a selloff in oil futures contracts and a drop in benchmarks. However, this week, the trend was reversing as OPEC+ hinted at tightening supplies in response to the release.

The White House proposed the reserve release as a strategy to keep retail fuel costs under control in the face of growing inflation. According to reports, President Biden approached the governments of China, India, Japan, and South Korea with the proposal that they collectively release oil from their strategic stores to indicate to OPEC that huge consumers can also make a difference.

The chances of a coordinated oil release were seemed bleak, but China indicated that it was drafting a new oil tender that would supply petroleum from its strategic reserve. Then Japan announced that it had discovered a legal means to release petroleum from its strategic reserve. However, the government questioned the constitutionality of such a move because the legislation specifies that oil from the strategic reserve can only be released in times of shortage or natural disaster, neither of which is the case presently.

According to a Bloomberg article from earlier today, a draw from the reserve was legal if it was made from the extra supply. Initially, India was opposed to the proposal, claiming that it would have the opposite effect. However, according to Bloomberg, which cited anonymous sources, the government in New Delhi is debating the timing of the reserve release and coordination with other significant customers. Today, the United States announced a release from its Strategic Petroleum Reserve. According to a White House news statement, the release was substantial, with 50 million barrels spread out over several months.