In an effort to reduce oil prices and force gasoline prices to lower, the United States has teamed up with several other countries — China, India, South Korea, Japan, and Britain — to release crude oil into the market, Reuters reports. America will be releasing 50 million barrels of oil from the U.S. Strategic Petroleum Reserves, and you can expect that oil to start hitting markets in mid- to late-December.
This is the latest in an ongoing oil saga. OPEC+ has largely refused to raise oil production, the argument being that the world isn’t short on crude oil, but that there are issues with distribution instead. Countries like the United States, though, are feeling the pressure to reduce gas prices, and OPEC+ stated that it might be willing to increase oil production if several countries around the world drew on their oil reserves.
All the uncertainty comes as a result of more COVID-fed national lockdowns in Europe as once again, COVID cases are rising. Austria entered its fourth lockdown as of Monday this week, and Germany’s politicians are debating whether or not to impose lockdowns, and whether or not those lockdowns should just impact unvaccinated people. Demand in those countries has thus begun to fall.
Here’s a little more on the sweeping effects of the lockdown, from S&P Global:
“Crude prices continue to get punished as rising COVID cases across Europe threaten the short-term outlook,” OANDA senior market analyst Ed Moya said. “Over the past two weeks, the energy market went from thinking a worsening oil market deficit and global energy crisis could trigger $100 oil prices, to fearing a pandemic relapse in Europe could trigger a blow to the short-term crude demand outlook.”
And here’s some more context from CNBC:
U.S. investment bank Goldman Sachs said the recent declines in oil prices were “excessive” given that the oil market remains in a deficit, adding that it reiterated its $85-per-barrel forecast for the fourth quarter.
Let’s get even more historical context. Back in 2017, oil supply pretty consistently exceeded demand, which led to cheaper gas prices and the ability to stockpile reserves of oil. OPEC then decided to slow production of oil, and the United States couldn’t keep up with the extra demand that placed on its ability to produce its own oil. And then the economy started to grow, and people started wanting more oil, and there wasn’t enough. Prices started to rise again.
And then COVID-19 hit. Suddenly, there were massive fluctuations in supply and demand. Lockdowns meant that people didn’t need as much oil, and OPEC drastically cut production. But then there were spikes in demand after lockdown ended, and all those laid-off oil workers weren’t exactly rushing back to the job.
It’s been a vicious cycle, and it doesn’t look like it’s going to come to an end any time soon now that several countries are drawing on their oil reserves while COVID lockdowns still threaten large swaths of the world.