(EnergyAsia, June 28 2011, Tuesday) — If International Energy Agency (IEA) members opened their emergency oil stockpiles last week to ward off a global recession, the move marks a major shift in countries’ approach to intervening in the oil market, two industry experts said on the Platts Energy Week, a US independent, all-energy television news and talk programme.
“This would be the first time it’s ever been done for that reason. It’s effectively using the shield as a club, to try to influence not just the behavior of OPEC but potentially speculators and, to a limited extent, refiners. That’s a big change, and it’s not entirely clear that it will work,” said Kevin Book, managing director of ClearView Energy Partners.
IEA announced Thursday (June 23) that it would offer 60 million barrels from its emergency stockpiles, with the US selling 30 million barrels of sweet crude from its Strategic Petroleum Reserve (SPR) stocked in Texas and Louisiana. The governments said the coordinated move was a response to the 140 million barrels taken off the market since the start of the Libyan civil war.
Mr Book said the new supplies have the potential to cut consumer spending on oil and refined products, inject cash into consumer consumption and give governments money to spend elsewhere.
“Maybe that’s the biggest reason for doing it. If that’s the case, selling your insurance policy to go gambling is a really dumb idea,” he said.
Randa Fahmy Hudome, a consultant and former US Department of Energy official who worked closely with the IEA, said it likely had more to do with US politics than with concerns over global oil supplies.
“President Obama, going into the 2012 election, realises one of the biggest factors in the economic downturn is gas prices. Consumers are very unhappy about that. That being said, releasing oil from the SPR is not going to solve the price of gasoline. …That is for emergency situations, and this is not an emergency,” she said.
Mr Book said that while the world does not have an oil shortage, buyers do want more sweet crude.
“There’s a quality problem. And a quality problem has only one real long-term solution, which is that you either get more high quality crude or more high-complexity refineries,” he said.
“You can’t get more high quality crude without peace in Libya, and those refineries guaranteed are on their way. The big question is how long do you want to keep injecting high-quality oil at great security and financial expense into the global system to keep this artificial effect of supplying that high quality oil in place?”
Ms Fahmy Hudome said the US was likely at the forefront of the talks that preceded IEA’s decision.
“The US is really driving this with secret, behind the scenes diplomatic discussions to try to get producers to increase production. When that didn’t happen, it launched a lobbying effort to have the IEA match us here in the US with the 30-million release,” she said.
Mr Book compared opening the SPR to testing an atomic weapon. It sent the message to the market that the action was possible, even if it has only happened twice before.
“The bad part is that if you test the weapon and you scare people, that’s fine. If you use the weapon and it doesn’t work, that’s not fine. We may find that out very soon,” he said.
Earlier, John Kingston, Platts global director of news, said that the IEA and US government had been talking about a potential release since early April or May.
“[This release] is certainly a short-term move to keep the price down and maybe give a little lift to the global economy,” Mr Kingston told programme host Bill Loveless.