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Wednesday, December 1, 2021

Britain joins global challenge to Opec’s oil stranglehold

The Opec-plus coalition, comprising Opec members Saudi Arabia and Iran and other major oil producers such as Russia, agreed to steep production cuts in the teeth of the pandemic to try to shore up prices in freefall. 

They have since started turning the taps back on, but the US wants it to go faster in the face of climbing petrol prices that are hurting American consumers. 

President Biden’s administration this month accused Opec of putting the recovery from the pandemic at risk by inflating prices.

Opec members are concerned about setbacks to the recovery from the coronavirus pandemic, wary of a return to the negative oil pricing that briefly gripped the market in April 2020 when demand went into freefall.

As a member of the International Energy Agency (IEA), the UK has to hold at least 90 days of oil supply. 

The UK has no national oil company, so this obligation is carried out by large private suppliers, defined as supplying more than 50,000 tonnes of key fuel a year. 

This is thought to comprise around 20 companies including all six major refiners, specialist refiners, oil producers and importers such as Shell and BP, and other companies in the supply chain. 

By law they must hold a total of 33m barrels, but the reserve is now 75m barrels. Under the agreement, they will be able to sell 1.5m barrels of these into the market. 

The release in the UK is voluntary, meaning they will not have to prove to the Government they have made it available to the market.

The last time non-Opec countries released their oil reserves was during the civil war in Libya in 2011, but China did not take part. The bulk of the release, about 50m barrels, is being made by the US.

The market reaction was muted, however. Rather than falling, Brent Crude rose more than 3pc above $82. Analysts said rumours of the US move may have dampened reaction.

They also warned that the move gives Opec no incentive to increase output aggressively.

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