Crude oil investors are bracing themselves for the ‘big news’ in the form of a public announcement by the world’s most powerful man in the evening, with regard to the steps taken by his administration to cut down on rising energy prices.
Everyone expects that President Biden will address
the issue while referring to the tools at his disposal and how he is going to
use them; tapping the SPRs, the strategic petroleum reserves, may be his number
one option, the nuclear one.
The problem with this option, however, is exactly
like in atomic radiation, the political fallout is going to linger on for years
to come; most of the members of the OPEC+ that are on President radar are still
staunch US allies in the Middle East.
Realistically, in light of the relatively small fall
in the price of crude oil, however, its long term impact has become a hot topic
among analysts and investors.
Of course, the Biden administration scored a
diplomatic victory by taking all the major consuming nations, including China,
on board. The collective move is not something that the OPEC+ anticipated,
having turned its back on the individual requests to increase the output – at a
difficult time in the middle of a pandemic.
The OPEC+ could have handled the concerns of the
major consuming nations much better than it did; unfortunately, they shot
themselves in the foot.
The Europe is on the brink of going into lockdowns
again and the demand for crude oil will fall, if the continent fails to avert
the fourth wave. It goes without saying how such an eventuality will reflect on
the oil producing nations, which had been victims when the price fell
precipitously at the beginning of the pandemic.
The reaction of the OPEC+ was as if it got carried
away by the misplaced optimism of certain investment banks that had been
predicting the price of crude oil smashing through a ceiling of $100.
Of course, the OPEC+ can respond by reducing the
output. If the fourth wave of the Covid-19 is already upon us, such a move, at
best is just impulsive and at worst, counter-productive.
The rising energy cost has fuelled inflation and
among many things, it has made people use less fuel when the festive season
starts.
As for President Biden, aged 79, he has to tackle
two burning issues: inflation fuelled by rising energy prices and his own
dismal approval ratings.
With a few bold moves, political analysts believe,
he can tackle both simultaneously; with his decision to withdraw American
troops from Afghanistan without batting an eyelid, he has already shows his
mettle. He needs to make a similar move to tackle the energy crisis too.
Tapping into petroleum reserves collectively may not be
his only option to dealing with the energy crisis, because he talked about ‘tools’
in his possession, not just a single ‘tool’ whatever the former may be.
President Biden’s determination to prioritize
tapping the SPRs instead of other ‘tools’, meanwhile, implies his diminishing
hope of reviving the JCPOA, 2015 Iranian nuclear deal. That means the risk of
crude markets being overwhelmed by a supply excess appears to be as remote as
it used to be, when President Trump was in power.
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