Triple digit oil has done for us what it did in 2008: crash the economy. And it only took about 2 months worth of high prices. So today, for only the third time in history, the International Energy Agency is authorizing the emergency release of oil. But only for one month. What this clearly tells us is that the market alone cannot meet the demand and without this release, prices would skyrocket. I guess it is hoped that it will get the Western world through the summer with fairly low gas prices and that we can buy some time to get some extra production up and going. And maybe lower prices in the short term can help offset all the really bad economic news.
It’s overused these days, but this is just a case of kicking the can down the road.
IEA makes 60 million barrels of oil available to market to offset Libyan disruption
PARIS, 23 June 2011 – International Energy Agency (IEA) Executive Director Nobuo Tanaka announced today that the 28 IEA member countries have agreed to release 60 million barrels of oil in the coming month in response to the ongoing disruption of oil supplies from Libya. This supply disruption has been underway for some time and its effect has become more pronounced as it has continued. The normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further. Greater tightness in the oil market threatens to undermine the fragile global economic recovery.
In deciding to take this collective action, IEA member countries agreed to make 2 million barrels of oil per day available from their emergency stocks over an initial period of 30 days. Leading up to this decision, the IEA has been in close consultation with major producing countries, as well as with key non-IEA importing countries.
The IEA estimates that the unrest in Libya had removed 132 mb of light, sweet crude oil from the market by the end of May. Although there are huge uncertainties, analysts generally agree that Libyan supplies will largely remain off the market for the rest of 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. As these production increases will inevitably take time and world economies are still recovering, 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. The IEA collective action 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.
“Today, for the third time in the history of the International Energy Agency, our member countries have decided to release stocks.” Mr. Tanaka said. “I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy.”
Total oil stocks in IEA member countries amount to over 4.1 billion barrels, and nearly 1.6 billion barrels of this are public stocks held exclusively for emergency purposes. IEA net oil-importing countries have a legal obligation to hold emergency oil reserves equivalent to at least 90 days of net oil imports. These countries are holding stock levels well above this minimum amount, currently at 146 days of net imports. (http://www.iea.org/netimports.asp)
The IEA 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.
About the IEA
The International Energy Agency (IEA) is an autonomous organisation which works to ensure reliable, affordable and clean energy for its 28 member countries and beyond. Founded in response to the 1973/4 oil crisis, the IEA’s initial role was to help countries co-ordinate a collective response to major disruptions in oil supply through the release of emergency oil stocks to the markets. While this continues to be a key aspect of its work, the IEA has evolved and expanded. It is at the heart of global dialogue on energy, providing reliable and unbiased research, statistics, analysis and recommendations.
An FAQ goes into more detail here.
This is only the third time that the IEA has released reserves – the previous occasions were after Hurricane Katrina in 2005 and following Iraq’s invasion of Kuwait in 1990/91.