Friday, June 24, 2011

World Watch [IEA Oil Release]

by Vincent Lauerman, New York, EI, Jun 23, 2011
International Energy Agency (IEA) Executive Director Nobuo Tanaka announced on Thursday [June 23] that the consumer organization's 28 member countries had agreed to release 60 million barrels of oil stocks – including 30 million bbl from the US Strategic Petroleum Reserve [SPR] – in the coming month. Tanaka was following up on his implicit threat in May to unlock the reserves if Opec did not agree to increase supplies at its failed Jun. 8 meeting. The IEA has released strategic stocks twice before [please see details below -- D.R.], but this release clearly breaks with historical precedent [also, according to Peter Kemp, the IEA's release of oil stocks marks a new turn in oil market intervention---please see "World Watch," EI, Jun 24, 2011 -- D.R.]. Although the IEA framed the release in terms of the ongoing supply disruption in Libya, market sources say there is no actual shortage of physical crude. The IEA is instead making a pre-emptive move, looking ahead to “the threat of a serious market tightening” in the second half of the year, at a time when “world economies are still recovering.” Economic growth has been weakening, especially in OECD countries such as the US [...]

(In its 37-year history the IEA has collectively agreed to release strategic petroleum stocks only twice before to fill lost supplies -- in 1991 at the outbreak of the first Gulf War following Iraq's invasion of Kuwait, and in 2005 after Hurricane Katrina damaged offshore oil rigs, pipelines and oil refineries in the Gulf of Mexico. Separately, please also see Petroleum Economist (PE) commentary -- The IEA's release of crude from strategic stocks is less about Libya than about the global economy - and it should send oil prices tumbling, says the editor of PE Derek Brower. Also, please see retweets by me on Twitter dated June 23, here. The IEA has been warning since the turn of the year of rising oil burden -- "Were $100/bbl oil to become entrenched in 2011, that would risk pushing the [oil burden] figure through 5%," IEA said---please see my post "IEA Warns of Rising Oil Burden." The price of crude, if sustained at $100 a barrel or more for the rest of 2011, would cause similar demand destruction as the world experienced in 2008 that led to the global economic crisis, Nobuo Tanaka, IEA executive director, said---please see The Telegraph, Apr 20, 2011. Please compare the above-mentioned analysis to the IEA's official position -- The use of IEA strategic stocks "is not about price but rather about ensuring an adequately supplied market to protect the world economy from unnecessary damage when it is in a fragile state." [?]---please see IEA: Key Questions answered on the release of oil stocks or more precisely "IEA collective action – June 23, 2011: FAQ." The SPR crude oil stocks are stored in underground salt caverns along the Gulf of Mexico Coast. Currently, there are a historically high 726.6 million barrels of crude oil in SPR, close to its 727.0 million barrel capacity. Historically, releases from the SPR have taken one of two forms, either an exchange, where oil provided in the release is then repaid within a specified time, or sales, where oil is auctioned off in a competitive bidding process. The United States has released crude oil from the SPR a number of times since 1985, according to the U.S. Department of Energy. The most recent release was the 5.4 million barrel exchange following Hurricanes Gustav and Ike in September 2008. To date, the largest release was a 30 million barrel exchange in the fall of 2000 in response to low heating oil supplies in the Northeast region of the United States---please see chart below and U.S. Energy Information Administration/EIA, Today in Energy, Jun 24, 2011, here. -- D.R.)
              [Click on chart to enlarge]


No comments:

Post a Comment