OGJ Oil Diplomacy Editor
LOS ANGELES, June 23 -- International Energy Agency Executive Director Nobuo Tanaka, making good on earlier threats, said the 28 IEA member countries have agreed to release 60 million bbl of oil in the coming month in response to the ongoing disruption of oil supplies from Libya.
“Today, for the third time in the history of the International Energy Agency, our member countries have decided to release stocks,” Tanaka said, adding, “I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy.”
IEA member countries have agreed to make 2 million b/d of oil available from their emergency stocks over an initial period of 30 days. IEA said it had been in “close consultation with major producing countries, as well as with key non-IEA importing countries” ahead of making this decision.
IEA expected that North America would release half of the total, with European countries releasing some 30%, and Asian countries, the remainder. IEA said it will produce a tally “once it has a clear indication of the types of oil that each country will make available.”
Release follows earlier threat
IEA’s decision to release oil follows a veiled threat to release stored supplies made prior to the June 8 meeting of the Organization of the Petroleum Exporting Countries in Vienna.
The IEA governors, in an effort to exert pressure on producers, said they were “prepared to consider using all tools that are at the disposal of IEA member countries”—a reference to the fact that IEA members hold 1.6 billion bbl of oil in strategic reserves, which could be released to stabilize the market (OGJ Online, May 20, 2011).
In announcing its decision this week, IEA said the disruption of supplies from Libya has been under way for some time and its effect has become more pronounced as it has continued. The agency said the disruption would be compounded by seasonal high demand going into the summer months.
“The normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further,” IEA said, adding that, “Greater tightness in the oil market threatens to undermine the fragile global economic recovery.”
IEA said the unrest in Libya had removed 132 million bbl of light, sweet crude oil from the market by the end of May, and that commercial stocks in the OECD countries had tightened as a result.
“Because crude demand peaks during the summer season in the Northern Hemisphere, we estimate that preventing further market tightening in the third quarter will require 2 million b/d of additional supply,” IEA said.
IEA also noted that analysts generally agree “that Libyan supplies will largely remain off the market for the rest of 2011.”
IEA’s statement follows a report by Goldman Sachs, as well as IEA itself, that Libya’s oil production faces a long haul to make a full recovery in the wake of the civil war gripping the country and will not return to its full capacity until 2015 (OGJ Online, June 23, 2011).
“Given this loss and the seasonal increase in demand, the IEA warmly welcomes the announced intentions to increase production by major oil producing countries,” IEA said, referring to the decision by Saudi Arabia earlier this month to unilaterally boost its output to 10 million b/d (OGJ, June 20, 2011).
“The IEA welcomes the announcement made by Saudi Arabia that it intends to make incremental oil available to the market,” the group said. It added that IEA and its member countries have been in close contact with key oil producing countries, and in particularly with Saudi Arabia, which holds “the lion’s share” of OPEC’s spare capacity.
Production boosts to ‘take time’
However, IEA took its decision to release the additional supplies because promised production boosts “will inevitably take time” and that the threat of a serious market tightening, particularly for some grades of oil, “poses an immediate requirement” for additional oil or products to be made available to the market.
IEA said the collective action of its members is intended to “complement expected increases in output by these producing countries, to help bridge the gap until sufficient additional oil from them reaches global markets.”
IEA said its governing board will within 30 days of this notice “reassess the oil market, review the impact of their coordinated action and decide on possible future steps.”
IEA’s decision came at the beginning of the weekend in most of the OPEC countries, and responses from member states were muted. OPEC delegates from Iran and two gulf states told Reuters that the release was unjustified.
"The oil price hasn't shot up to $150[/bbl]. There is no reason to do this. The market is not short of supply. Kuwait and Saudi Arabia have been raising production, but there have not been many buyers. The IEA is just playing politics with the US," one gulf delegate said.
"I don't know how to justify this interference in the market," said one OPEC delegate on condition of anonymity.
Earlier this month, Iran’s OPEC governor Mohammad Ali Khatibi told Iranian media that the member countries that supported an output increase at the June 8 meeting amounted to an effort to “interfere” with market forces under US pressure.
"There is currently absolutely no shortage in the market, and consequently there is no need to raise production," said Khatibi. "Raising supply in the absence of demand would amount to an interference in the market flow (OGJ Online, June 20, 2011).”
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