France Says Agreement on Emergency Oil Stock Use Is Closer
France said governments are moving closer to an agreement on a release of oil from emergency stockpiles to stem gains in crude that have driven prices to the highest levels in three years.
The prospects of an accord between the U.S. and Europe on tapping strategic reserves are “good” and consumers can “reasonably expect” a release, French Prime Minister Francois Fillon told France Inter Radio today. U.S. President Barack Obama and U.K. Prime Minister David Cameron discussed the move earlier this month. France will only use its oil reserve in coordination with other countries, Finance Minister Francois Baroin said on Europe 1 radio.
“There is definitely increasing talk about releasing stocks, and now they are talking so much, it’s going to be hard not to do something,” Olivier Jakob, managing director at Petromatrix GmbH, a Zug, Switzerland-based researcher, said by phone. “Oil prices are rising, which is a threat to the economic recovery, so pressure is growing on governments. The Saudis aren’t acting, so the only thing left is to release stocks.”
Brent crude, a benchmark grade for about half the world’s oil, gained 15 percent this year on concern demand will outstrip supply amid tightening sanctions on Iran and output disruptions in Sudan, Yemen, Syria and the North Sea. The gains have helped spur claims in the U.S. that President Barack Obama needs to do more to curb rising fuel costs in an election year. The “oil burden,” the proportion of global gross domestic product accounted for by spending on fuel, is higher than during the 2008 crash, the International Energy Agency says.
Brent slipped for a third day today, dropping $1.56, or 1.3 percent, to $122.60 a barrel at 6:24 p.m. in London. West Texas Intermediate retreated $2.33, or 2.2 percent, to $103.08 a barrel in New York.
Iran, the second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, may lose crude exports of as much as 1 million barrels a day because of a ban on its oil, according to the IEA. The Paris-based adviser to 28 consuming nations coordinated the release of 60 million barrels of crude and oil products in June after Libyan output was disrupted by an armed uprising against Muammar Qaddafi.
The agency said it’s closely monitoring the market and is ready to release oil if there is a serious supply disruption.
“The IEA was created to respond to serious physical supply disruptions, and we remain ready to act if market conditions so warrant,” Maria van der Hoeven, its executive director, said today in an e-mailed statement after a scheduled two-day quarterly meeting with experts.
The Obama administration hasn’t made a decision on whether to tap its Strategic Petroleum Reserve (DOESSPR) nor made any specific proposal to allies, Josh Earnest, deputy White House press secretary, said in Washington yesterday.
“While this is an option that remains on the table, no decisions have been made and no specific actions have been proposed,” he said.
The U.K. government is “monitoring developments, but no decision has been taken,” the Department of Energy and Climate Change said today in a statement from London. The U.S. has proposed a stockpile release to curb rising prices, French Industry Minister Eric Besson said yesterday.
“The rise in government communication around a strategic release is reflective of the domestic political context, notably in the U.S. and France, which are in presidential election years,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London. “The use of strategic stocks is to bridge the supply gap in the event of a supply disruption, not to manipulate prices.”
Cover Supply Shortages
Germany hasn’t been asked formally to join any move to free reserves, Tanja Kraus, an Economy Ministry spokeswoman, said yesterday. Tapping reserves can only be made to cover supply shortages according to the country’s law, meaning no fuel can be freed up to combat higher prices, she told reporters in Berlin.
France, as well as the U.S., holds elections this year. Germany’s national elections are due by the fall of 2013, while U.K. citizens will go to the polls in 2015.
France is waiting for a report from the IEA on inventories before making a decision, Budget Minister Valerie Pecresse said yesterday at a press conference.
“France is accompanying the U.S. and U.K. in the IEA consultation, which could allow the release of strategic oil reserves in order to break the rising price spiral,” she said.
The IEA will release a summary of its discussions with members in “weeks,” an official at the French industry ministry said today, declining to be identified citing policy. France, the U.S., and the U.K. are open to the idea of dipping into their reserves, while Germany is more reticent, he said.
“It’s almost inevitable there’ll be a release from somewhere,” Amrita Sen, an analyst at Barclays Plc, said in an interview with Manus Cranny on Bloomberg Television. The global market is “very tight,” with inventories declining, she said.
The IEA also made supplies available during the 1991 Persian Gulf War and when Hurricane Katrina damaged oil rigs and refineries in the Gulf of Mexico in 2005.
There is “no rational reason” for prices at current levels, Saudi Arabia Oil Minister Ali al-Naimi said yesterday in an editorial in the Financial Times. The nation can increase output by 25 percent, or 2.5 million barrels a day, immediately, he told reporters in Doha, Qatar, on March 20.
“It seems that a decision by the IEA and the countries concerned could be taken in the next few days,” Francis Perrin, chairman of Energy Strategies and Policies, said in an interview from Paris on Bloomberg Television’s ‘The Pulse’ with Maryam Nemazee. “Oil prices are on the rise at the world level for political reasons. We cannot expect the fact that some strategic stocks will be put on the market to have a lasting impact.”