(Bloomberg) -- Oil ministers from the OPEC+ group of producing nations are meeting on Thursday, having given the market clear signals that they will ignore calls for an injection of extra crude.
In so doing, they are pushing consumer countries toward a global, strategic release of crude reserves, writes Bloomberg oil strategist Julian Lee.
The group of 23 oil producers, led by Saudi Arabia and Russia, will hold a virtual meeting to decide their crude production policy for December. The current plan has them boosting their collective output target by 400,000 barrels a day.
Big oil consumers, including the U.S., Japan and India, have said that's not enough and pressed them to supply more. But country after country in the producer group has defended their existing plans, lining up behind the Saudis, who have promoted a cautious approach to raising oil supply as the world emerges from the depths of the Covid pandemic.
Crude prices fell by about 3% on Wednesday and that will undermine the pressure on them to open the taps wider - even if the sell-off reflects, in part, an expectation of higher supplies in December.
If the OPEC+ group sticks to its plan to add 400,000 barrels a day -- and the actual number of barrels added to supply will probably be lower, with several members unable to pump more than they're already doing -- the consuming countries will have to respond. And that means releasing crude from strategic stockpiles.
Read: OPEC Plus? Start Thinking OPEC Minus: Oil Strategy
An extra 200,000 barrels a day of production would add 6.2 million barrels to supplies over the course of December. That's less than the U.S. has released from its Strategic Petroleum Reserve since the start of September, partly in response to the loss of supply caused by Hurricane Ida and partly through long-planned sales to fund infrastructure spending.
The problem with releasing crude from government stockpiles is that it reduces the ability to respond to a real supply disruption, although the SPR is much larger than it needs to be, thanks to recent increases in U.S. crude production.
But the real problem for President Joe Biden and his oil consumer allies is: What do they do next if the producers don't buckle? A sale of crude from China's strategic reserves last month did little to cool rising prices.
Time might be on Biden's side, though.
Most oil market forecasts show a current supply shortage flipping into surplus early next year, which means that a single strategic stocks release might just be enough to get us through winter without oil prices soaring.
That surplus, if it materializes, might offer buyers an opportunity to replenish their strategic inventories without reigniting the rally.
©2021 Bloomberg L.P.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
