The strategic oil reserve.. Who are the largest holders of it, and when do countries resort to it?

The term strategic oil reserves emerged after US President Joe Biden's recent statements to release a share of his country's balance, and in coordination with other countries, to confront the policy of the "OPEC Plus" bloc.

These stocks differ from the reserves of the oil-producing countries, whose reserves are kept in their places, without entering the extraction stage, and they are either confirmed reserves, or potential reserves.

In light of the current conflict between major oil consumers and producers, over the desired policy for managing the oil market, we find it necessary to address the term strategic oil reserves, with explanation and clarification, by answering the following questions:

What does the strategic oil reserve mean?

The strategic reserve varies from one commodity to another, according to its importance and the nature of its consumption in the local market. With regard to oil, the strategic reserve means that the state maintains large quantities that reach the country’s needs for a period ranging between one and three months.

In general, the size of the strategic oil reserve depends on the size of the challenges faced by countries, which increases the quantities of the strategic reserve, and whenever there are possibilities to face supply difficulties, or wait for sharp fluctuations in prices, leading to an increase in its price in the international market, countries resort to High consumption, for such reserves.

Why do countries keep strategic reserves?

Maintaining stocks of strategic commodities, especially oil, is a normal behavior in light of the ongoing state of conflict, especially in one of the largest production areas, the Middle East. The observer of the oil market finds that it is highly affected positively and negatively with the events of the conflict in the Middle East.

Therefore, the major oil consuming countries were keen on the presence of their military forces in the region, in order to ensure the continuation of the flow of their oil needs, without going through crises that lead to the faltering of their economic activity, or their exposure to high waves of inflation.

When did countries start building a strategic reserve?

Oil consuming countries began to build their stocks of oil, after the first oil crisis in 1974, when the Arab countries reduced their quantities exported to the international market, in order to influence the countries supporting Israel, after the war of October 6, 1973, which led to the arrival of a barrel of Oil at that time rose to $40, after it had not exceeded $3-5.

Usually, countries with these strategic reserves tend to increase them, or create more of them in times of low prices in international oil markets.

When do you resort to it and when did countries actually resort to it historically?

Countries that have reserves of oil resort to using a part of it or employing this stock for a certain period of time, in exceptional circumstances, such as high prices in the international oil market, in a way that leads to economic fluctuations in their internal markets, and inflation rates reach in a way that cannot be confronted. Or a sudden rise in energy consumption, which was not planned.

The use of oil reserves is also resorted to, when there are crises in the supply of oil in the producing countries, especially if production fields are disrupted due to armed conflict or political instability.

Historically, since 2000, America has resorted 3 times to pump part of its strategic stockpile to control prices in the oil market, the first at the end of the Bill Clinton era, the second in 2011 under President Barack Obama, and the third during the era of Joe Biden, which was joined by a number of major oil consumers. In the world.

What countries have the largest strategic reserves, and how big are the reserves?

The data of the Unified Arab Economic Report for the year 2020 indicate that the total stock of strategic reserves reached 1.8 billion barrels in 2019.

According to other estimated data for each country’s share of this reserve, America ranks first, with about 606 million barrels, followed by China with about 345 million barrels, then Japan with about 290 million barrels, South Korea with about 97 million barrels, and India ranks lower among the countries The largest is about 39 million barrels.

However, it is noted that the data on the balance of the strategic oil reserves may be estimates, and do not reflect the real quantities, due to the importance of the matter related to the national security of each country.

Can America and other countries influence prices by pumping from the reserve?

America and other countries have tools that enable them to influence the oil market, and among those tools is pumping large amounts of strategic reserves.

America, for example, has what it affects by increasing the quantities of production, or pumping new investments in areas that can increase the quantities of oil supplied in the international market.

Despite statements by major producers and consumers that oil should not be a political card, everyone uses it in the political context par excellence. The decision of “OPEC Plus” to increase production in limited quantities comes within the framework of America’s courtship over important political files for both Russia and Saudi Arabia.

Could pumping from the reserve be counterproductive?

On November 23, 2021, America and other European countries announced the use of part of their oil reserves, in order to calm the upward trend in the international oil market, and solidarity with America and Western countries, China, India and Japan, have shown solidarity with America and Western countries.

However, the oil market continued to rise, contrary to what some expected, but on Friday, November 26, (2021), prices fell significantly, by up to 5%, bringing the price of a barrel of Brent crude to $77, and American crude to $73. dollars, which are closer to what they were in early September.

But we must realize that the oil market is governed by factors other than supply and demand. The US President has pledged to use what he has of other tools to reduce the price of oil.

What is the role of the International Energy Agency?

Since the establishment of the International Energy Agency in 1974, it has taken for itself a specific goal, which is to secure the arrival of oil to consuming countries without any crises. Israel.

The agency has other objectives and activities, all related to energy and its provision, but its role in the oil market is still influential through the agreement of its members to divide oil among themselves in the event of a shortage, and the agency’s monitoring through its reports and the work of its committees, gives important indicators to energy producers and consumers.

Why does the OPEC Plus group refuse to respond to Biden's requests?

The policy of "OPEC Plus" depends on reducing production quantities, so that the phenomenon of excess oil supply in the global market is eliminated, so that there is a balance between the mechanisms of supply and demand, and the market reflects real prices.

Therefore, the decision of “OPEC Plus” at the beginning of last October came with an increase of only 400,000 barrels per day, to the current production ceiling, until the end of 2021, and the failure to respond to the demand of US President Biden to increase production quotas.

While Biden's view is that the rise in oil prices in the international market is the reason for the wave of inflation that is hitting the global economy, especially in the major energy-consuming countries, led by America, which has an inflation rate of 6%.