"OPEC+ Considers Temporary Production Halt"...Will US Strategic Oil Release Effects Fail?

International Oil Prices Slightly Decline...Limited Effect of Strategic Reserves Release
Europe's COVID-19 Lockdown Expansion...Demand Reduction Concerns as a Variable

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The oil-producing countries' coalition OPEC Plus (OPEC+) is reportedly considering a tough measure to temporarily halt its existing production increase plan in response to the strategic petroleum reserve (SPR) releases led by the United States and other major oil-consuming countries. Amid the intensifying confrontation over oil prices and the overlapping expansion of COVID-19 lockdown measures in Europe, concerns are rising that oil demand will sharply contract. If OPEC+'s suspension of production increases materializes, international oil prices are expected to show unstable patterns, repeatedly fluctuating sharply for some time.

On the 24th (local time), the Wall Street Journal (WSJ), citing sources familiar with OPEC+ discussions ahead of the production adjustment meeting scheduled for the 2nd of next month, reported that "Saudi Arabia and Russia are considering temporarily suspending the existing production increase decision," and "it is expected that a decision to adjust or temporarily halt production increases will take effect in January next year."

This is interpreted as a direct countermeasure following the previous day's announcement by the Biden administration in the United States to release SPR in coordination with major oil-consuming countries such as China, South Korea, Japan, and India. WSJ reported, "The SPR release volume by the United States and major oil-consuming countries is estimated to be about 70 million barrels, and OPEC+ member countries are concerned that such measures could disrupt the balance of supply and demand in the oil market."

[Image source=Reuters Yonhap News]

Earlier, OPEC+ countries announced at a meeting earlier this month that they agreed to maintain the existing plan to increase production by 400,000 barrels per day each month until next year, at least through December. Despite the U.S. government, which is experiencing severe inflation, requesting to more than double the production increase, OPEC+ ignored the U.S. request and announced it would maintain the existing production increase plan, marking the start of a full-scale confrontation between the two sides.

International oil prices showed instability. On this day, West Texas Intermediate (WTI) crude oil prices on the New York Mercantile Exchange (NYMEX) closed at $78.39 per barrel, down 0.14% from the previous session. During the session, WTI prices rose by 0.7% compared to the previous day but then ended slightly lower, showing mixed trends. Brent crude oil on the London ICE exchange also closed down 0.34% at $81.05 per barrel compared to the previous day.

Concerns about reduced demand due to COVID-19 in Europe have also emerged as a variable. According to CNN, the Slovak government announced on this day that it would reinstate nationwide lockdown measures for two weeks. Following Austria's announcement on the 22nd to resume lockdown measures, neighboring Slovakia also entered lockdown, raising growing concerns that European countries will successively reinstate lockdowns.

[Image source=Reuters Yonhap News]

Experts predict that oil prices could become even more unstable amid concerns over the relatively small scale of SPR releases and the possibility of OPEC+ temporarily halting production increases. Considering that the current global daily oil consumption is about 100 million barrels, the impact of releasing 70 million barrels on oil prices is analyzed to be very limited.

Neil Beveridge, chief analyst at U.S. investment advisory firm Sanford Bernstein, explained in an interview with Bloomberg News, "The SPR release is ultimately a stopgap measure rather than a fundamental solution to the oil supply and demand problem," adding, "Because its direct impact on the market is minimal, the situation could worsen going forward."

This content was produced with the assistance of AI translation services.