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Crude oil is currently hovering just below its multi-year high reached in July. Both international-benchmark Brent and U.S.-benchmark West Texas Intermediate were driven there this week by a combination of events including the slow restart of production at offshore installations caused by Hurricane Ida and the quick restart of refinery operations. Therein lies the problem with supply.
Refineries are drawing on whatever dwindling supply they can get their hands on to produce gasoline and distillates. But the inability to produce oil from offshore operations means supply is at extremely low levels.
How low is supply? Low enough to encourage both the U.S. and China to tap their strategic oil reserves to keep refiners operating.
These events have prompted the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) to comment on these events in their monthly oil reports. These reports helped underpin prices this week.
“It is only by early 2022 that supply will be high enough to allow oil stocks to be replenished,” the Paris-based IEA said. “In the meantime, strategic oil stocks from the U.S. and China may go some way to help plug the gap.”
China, US Tap Strategic Reserves
In an effort to maintain supply levels high enough to keep refiners operating and to keep prices from rising too high, too fast, both China and the U.S. recently made moves to release supply from their strategic reserves.
China will make the first sale of oil from its strategic reserves on September 24 after announcing the historic move last week, an unprecedented intervention by the world’s top crude importer to lower prices, Bloomberg reported.
The initial auction will be for about 7.38 million barrels of crude, the National Food and Strategic Reserves Administration said in a statement late Tuesday. Grades include Qatar Marine, Forties, Oman, Murban and Upper Zakum, which are in tanks at Dalian and were put into storage last year, the agency said.
The Chinese agency said last week that it would tap its giant oil reserves to “ease the pressure of rising raw material prices.”
Additionally, earlier this month the Energy Department authorized loans of SPR crude to Exxon and Placid Refining Company LLC’s refineries in the Baton Rouge area totaling 3.3 million barrels to help them cope with the dearth of oil coming from the U.S. Gulf.
“The SPR’s ability to conduct exchanges is a critical tool available to refiners to strengthen the fuel supply chain and mitigate disruptions following emergencies, like Hurricane Ida,” the department said on its website after authorizing the additional loan to Exxon’s Baton Rouge refinery.
Exxon is transporting the oil to the 520,000 barrels per day refinery, “which will help us completely restore normal operations and continue providing fuel to the impacted area,” said Julie King, a company spokesperson. The plant resumed normal operations earlier in the day.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire