Paris/New York: World oil consumers are poised to tap into emergency oil inventories as soon as early September after the International Energy Agency (IEA) dropped its resistance to a US-led plan, a source and an oil journal said on Friday.
Just one week after its chief said there was no discussion of possible emergency action, the IEA is now thought to have agreed to the idea, the industry journal Petroleum Economist reported on Friday, citing unnamed sources. The release could be as large or larger than last year’s 60 million barrel injection.
Responding to the report, IEA Executive Director Maria van der Hoeven said the agency remained in close communication with members and stood “prepared to act as necessary in response to a physical disruption”, avoiding the question of whether active consideration of a reserve release was underway.
“However, as I said as recently as last week, at this time the conditions that would warrant such a response by the IEA are not present,” she said in a statement.
But market fundamentals may not be the principal consideration. While the disruption to Iran’s exports may be used as the excuse for action, US officials are also keen to temper rising prices that risk diminishing the impact of financial sanctions on Tehran, Reuters reported last week, citing sources.
While the IEA may not agree that the degree of supply disruption has met the traditional measure of what would merit emergency intervention, it is concerned that the United States, France and Britain might act together to draw on stockpiles without coordinating with the rest of the group, undermining its credibility, according to Friday’s media report, which was echoed by the source.
“The US is the main driver, the IEA sees no need for a release. However, if major consumers such as the US, UK and France want a release, the IEA is likely to step up and play a role,” said the source, who spoke on condition of anonymity.
“A release could be as early as September,” the source said on Friday.
News that consumer nations could be moving quickly toward intervening in oil markets again weighed on prices, with benchmark Brent crude falling $1.42 a barrel or 1.2 percent to close at $113.59 a barrel. The impact was muted by oil platform closures as a storm heads toward the US Gulf.
The Petroleum Economist said that the sharp decline in Iran’s oil exports this year would be used as a justification, it reported in an article by editor Derek Brower, who also writes for the Economist magazine.
“Whether it’s self-inflicted or not, that’s still a supply disruption,” the article quoted an unnamed official at a government backing the release as saying. The Petroleum Economist has been a well-regarded energy industry publication for decades, but it is better known for its sophisticated analysis and detailed maps than for breaking news.
Talk of tapping into strategic stockpiles resurfaced last week after Reuters reported that the White House has began “dusting off” old plans for a possible release on fears that the 30 percent rise in oil prices since June could undermine the effect of sanctions on Iran.
Analysts also have said the move could be timed to aid the reelection effort for President Barack Obama, who has shown a much more liberal approach to the country’s Strategic Petroleum Reserve (SPR), which has traditionally been reserved for major supply disruptions to be used only as a last resort.
Last year the US led a successful effort to convince the IEA to tap into emergency supplies for the third time in its history.
The Petroleum Economist said the White House had spent “recent weeks” seeking to persuade other countries to join the plan, although officials in both the United States and other IEA members told Reuters that no talks had been held by last week.
On August 17, a source familiar with the matter said US officials were waiting to assess market conditions after the Labour Day holiday on September 3 before making a decision.
Plans do not appear to have reached an operational stage.
“I have received no official instruction telling me to stand ready to release stocks and I’m unaware of such plans,” Jean-Marc Tenneson, head of the steering committee of France’s strategic oil reserves agency (CPSSP), said on Friday.
He said a release would not be “reasonable” under current circumstances, and would only be legitimate if, for example, geopolitical tensions between Iran and Israel worsened noticeably.
The Petroleum Economist, part of the Euromoney group, reported that France and Britain, both of which had signalled their support for releasing reserves during an earlier round of discussions in the spring, have endorsed the strategy.
It cited a diplomatic source as saying a British cabinet official had discussed the move in Washington in recent days.
Last Friday, van der Hoeven said there was “no reason for a release”, and that no other IEA member was considering such a measure. She said then that she had not been in contact with the White House over possible intervention.
The Petroleum Economist article said that the IEA had changed its stand after “lengthy talks with US Department of Energy officials in Washington earlier this month”.
Officials in Japan and South Korea — both of which have cut back Iranian imports in order to avoid new US sanctions — also dismissed the need for emergency supplies last week. The Petroleum Economist story said some IEA members were still opposed, including Germany.
US and British officials have consulted on the plan with Saudi Arabia, according to the report. The kingdom believes that there is no need for a release, but that the decision is up to consumer countries, according to the story.
Oil consultancy Petroleum Policy Intelligence (PPI) said this week that some consumer nations had discussed a possible price trigger of $115 to $120 a barrel for taking action, according to the journal’s report.