After India, US Release Oil Together, OPEC+ Counterpunch That Could Hurt

The OPEC+ group of oil producers would have to defer at least two months' worth of planned output increases to offset strategic stockpile releases led by the U.S. That won't be a comfortable option for the countries involved, which have been steadily raising output targets since May, writes Bloomberg oil strategist Julian Lee.

The U.S. will release 50 million barrels of crude from the Strategic Petroleum Reserve, with India adding another 5 million barrels from its emergency stockpiles and the U.K. contributing 1.5 million barrels. Announcements are also expected from China, Japan and South Korea, which together could add anywhere between 10 million and 20 million barrels.

OPEC+ producers previously warned that they would respond by delaying further output increases planned for January and beyond, or even by reversing increases that they made already. The group is due to hold discussions on Dec. 2 to set production plans for January.

To offset fully a release of 60 million barrels of crude from consumer stockpiles by the end of March, the producer group would have to forgo the 400,000 barrel-a-day output increases planned for both January and February.

That may be no hardship for those members -- most notably Angola, Nigeria and Malaysia -- that have struggled to keep up with their rising output targets. But it would come as a blow to others, like Russia, where the upper house of parliament appears to be hoping for a quicker restoration of shut-in production.

OPEC already sees the oil market flipping from deficit to surplus as 2021 draws to a close, which means that President Biden may not need his SPR release to calm the market for long.

It is not impossible that Saudi Arabia could make another unilateral output cut, but probably it would prefer a united response from its OPEC+ allies, which refused to make a bigger-than-planned increase when they met in early November.

That decision may prove to have been a mistake. Meeting consumers part way, perhaps by bringing forward half of the output boost intended for January, would probably have been enough to avert the release of strategic stockpiles. The producers' refusal to show flexibility is likely to end up costing them more than compromising would have done.

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