Derek Brower, LONDON: Soaring oil prices
are likely to trigger a release of strategic oil stocks by
Western consumer countries as soon as early September,
according to several sources. The loss of supplies from
sanctions-hit Iran will be used to justify the move, which
could unleash as much or more oil as last year’s
60 million barrel stock release, said market insiders.
The International Energy Agency (IEA), which has been a vocal
opponent of the idea, is now thought to have agreed with the
plan. According to one source, the agency, persuaded by the
White House’s determination, has now asked the US
not to proceed alone with a release from the
country’s Strategic Petroleum Reserve, but to wait
for IEA-wide participation. A unilateral release from the US
would undermine IEA market credibility, said the source.
Worried by the impact of rising gasoline prices on the US
economy and Barack Obama’s hopes for re-election,
the White House has spent recent weeks trying to persuade other
consumer countries to endorse its stock-release plan.
France, which is planning measures to reduce fuel duty, and the
UK have endorsed the US strategy and are willing to release
their own stocks. A diplomatic source said a UK cabinet
official has spent recent days In Washington, DC discussing the
It is understood that the IEA switched its stance and agreed to
the plan after lengthy talks with US Department of Energy
officials in Washington earlier this month. US officials are
understood to have challenged the IEA’s stance
that the market remained well supplied, suggesting it had
underestimated the impact of the sanctions against Iran.
Traders in the Brent physical market have reported renewed
tightness in recent weeks.
A spokesman for the IEA told Petroleum Economist that
the agency "continuously monitors the oil market and remains in
close contact with its member countries' governments so that it
stands ready to act swiftly if needed and appropriate".
Some consumer countries previously discussed price-trigger
points for a stock release, with $115 a barrel and $120 a
barrel both said to be in mind, according to a 23 August report
from Petroleum Policy Intelligence (PPI), an oil market
consultancy. However, persistent global economic weakness and
the sharp rise in US gasoline prices - which on 24 August hit
an average of $3.73 a gallon - have pushed the White House to
revisit a plan first mooted in March.
PPI said the likeliest timing for a release would be after the
US Labor Day holiday, when the White House would gain maximum
political credit for the move. Volumes are likely to be 30
million barrels from the US and another 30 million barrels from
the rest of the IEA, speculated some analysts.
But if the IEA and US decide they need to shock a sceptical
market, the size of the release could be even bigger, argued
Stephen Schork, editor of Schork Report, an influential
oil-market newsletter, said the release could be made as early
as 31 August, the Friday before the bank holiday on 3
September, or in the week after Labor Day.
That would give a release three weeks to bring US gasoline
prices down before the first presidential election debate
between Barack Obama and his challenger, Mitt Romney.
"Otherwise, on the eve of the debates, people are going to be
paying well in excess of $4/g," Schork said.
"That’s $1.50/g more than where gasoline was when
Obama was elected". President Obama won in November 2008
against a backdrop of falling oil and gasoline prices, as the
global economy went into a tailspin.
But the move still faces some opposition among other IEA
members. Japan recently spoke against a stock release, saying
the market remained amply supplied despite a near-25% rise in
oil prices in the past two months. Germany is also sceptical.
The UK’s Department of Energy and Climate Change
also remains opposed to the plan, despite Downing
Street’s backing for the release.
Earlier this month, IEA executive director Maria van der Hoeven
said a release was unnecessary because "there’s no
disruption of supply [so] there’s no reason for
the IEA to be involved".
Yet that stance has crumbled under pressure from the US,
according to sources. The IEA has said sanctions against Iran
have withdrawn around 740,000 barrels a day (b/d) of supply
from the market. "Whether it’s self-inflicted or
not, that’s still a supply disruption," said an
official at a government backing the release.
The Iran sanctions, it has become clear, will give political
cover for the release. The September loading schedule from the
Forties fields in the North Sea - where maintenance will
severely curtail supplies next month - is at least as
responsible as Iran for the recent surge in Brent prices. But
technical issues in the North Sea won’t play
politically, say analysts. "People understand [the] Iran
[issue]," said Schork.
The US and UK have also sought to gain assurances from Saudi
Arabia that it would endorse the stock release, said an
The kingdom, it is understood, sees no need for a release, and
believes it is a sovereign decision for consumer countries.
Saudi Arabia has said it wants oil prices to fall to around
$100/b and has spent recent months pumping around 10 million
b/d to help build global oil stocks and balance the
Iran, meanwhile, has said it will call for an emergency Opec
meeting if the IEA releases stocks. "If it happens then there
has to be a collective action," said the country’s
oil ministry spokesman, Ali Reza Nikzad Rahbar, according to
However, unless Saudi Arabia and other Gulf producers abandon
their policy to balance the market, it is unclear which Opec
members would shoulder any cut in supply to accommodate the IEA