London — Oil prices slid to six-week lows on Thursday before recovering some ground, as China said it was moving to tap reserves after a Reuters report that the United States was asking large consuming nations to consider a stockpile release to lower prices.
The bid by the U.S. to cool markets, asking China to join a coordinated action for the first time, comes as inflationary pressures – partly driven by surging energy prices – start to produce a political backlash.
Brent crude was down 20 cents, or 0.2%, to $80.08 a barrel by 1035 GMT, after earlier dropping to $79.28, the lowest since Oct. 7.
U.S. West Texas Intermediate crude futures were down 39 cents, or 0.5%, at $77.97 a barrel, having fallen earlier to $77.08, also the lowest since early last month.
Coordinated oil reserve releases “coincide with this virtual meeting between Biden and Xi Jinping”, said John Driscoll, managing director at consultancy JTD Energy in Singapore.
“The U.S. wants to arrest inflation and China probably wouldn’t mind seeing a damper on oil prices.”
Prices hit seven-year highs in October as the market focused on the swift rebound in demand that has come with the lifting of lockdowns to halt the spread of the coronavirus.
The rally was fuelled in part by the strategy of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, called OPEC+, to resume output only slowly.
The International Energy Agency and OPEC have said in recent weeks that more supply will be available in the coming months.
But the proposed release of reserves represents an unprecedented challenge to OPEC, because it involves top importer China.
China’s state reserve bureau said it was working on a release of crude oil reserves although it declined to comment on the U.S. request.
A Japanese industry ministry official said the United States had requested Tokyo’s cooperation in dealing with higher oil prices. By law, Japan cannot use reserve releases to lower prices, the official said.
A South Korean official confirmed the United States had asked Seoul to release some oil reserves and it was reviewing the request but added that it could only release crude in case of a supply imbalance.
*Noah Browning, Aaron Sheldrick, Editing: Sam Holmes, Michael Perry, Christian Schmollinger & Peter Graff – Reuters