Oil Rises; IEA Emergency Release May Limit Future Crude SuppliesChristian Schmollinger
Oil rose in New York, reversing yesterday’s plunge, on concerns that stockpile releases by consuming nations may limit the ability to respond to supply disruptions in future.
Crude climbed as much as 1.5 percent after sliding 4.6 percent yesterday. The International Energy Agency agreed to release 60 million barrels to buyers starting next week. Oil stockpiles among the 28 member-countries of the IEA declined by 340,000 barrels a day during the first quarter of this year, the Agency said in its monthly Oil Market Report on June 16.
“People are concerned that if we use that last bullet then what’s going to happen as we go through the year and things get tighter?” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “That’s going to be bullish in the long run. We’re rebounding because you get this knee-jerk reaction and then cooler heads prevail.”
Crude for August delivery climbed as much as $1.32 to $92.34 a barrel in electronic trading on the New York Mercantile Exchange and was at $91.63 at 3:13 p.m. Singapore time. The contract yesterday slid to $91.02 a barrel, the lowest settlement since Feb. 18. Prices are down 0.9 percent this week, heading for a fourth straight decline, and up 20 percent the past year.
Brent oil for August delivery gained 62 cents to $107.88 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday fell $6.95, or 6.1 percent, to $107.26 a barrel, the lowest price since Feb. 22. Futures are up 41 percent the past year.
The IEA announced the release of 2 million barrels a day for 30 days to make up for supplies choked off by an armed rebellion in Libya. The U.S. Strategic Petroleum Reserve will provide 30 million barrels, European members will supply about 20 million and Asian nations the remainder.
“The more stocks you use now, the less of a buffer you have for any supply shock in the future,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne.
The decision comes after the Organization of Petroleum Exporting Countries failed to reach an accord on production increases at a meeting in Vienna on June 8. The group said two days later that it will need to pump 30.9 million barrels a day in the third quarter, or 1.9 million barrels more than it supplied in May.
“Supposing the Saudis were to increase production by 1 million barrels, that would suggest the need for another 1 million,” said Katherine Spector, head of commodity products research at CIBC World Markets, by e-mail today. “That is the math that consuming countries were looking at.”
The nation may reduce crude production in response to the IEA’s agreement to release stockpiles, Barclays Plc said yesterday.
“The Saudis may actually react negatively to this, backing off from output increases,” Amrita Sen, a London-based oil analyst, said in an e-mail. This goes “to show how degenerate the consumer-producer relationship has become.”
Brent crude won’t fall below $90 a barrel because OPEC “will start talking about cutting production” near that price, according to Societe Generale SA. Saudi Arabia, the world’s biggest oil exporter, needs prices at $90 to $100 to balance its budget, analysts at the bank said in a report e-mailed today.
The U.S. Energy Department yesterday requested bids for 30 million barrels of oil from the Strategic Reserve. The department offered 10 million barrels of sweet, or low-sulfur, crude from storage sites in Bryan Mound and Big Hill, Texas, and West Hackberry, Louisiana. Bids are due by 1 p.m. Central time on June 29, the department said.
Japan will release 7.9 million barrels of oil products from its stockpiles as part of the IEA’s plan, mostly to the domestic market, Trade Minister Banri Kaieda told reporters today in Tokyo.
South Korea will release 3.467 million barrels of oil, according to the Ministry of Knowledge Economy. The nation has 173 million barrels of reserves, the ministry said in an e-mailed statement yesterday.
Germany will open up 4.2 million barrels of its reserves, while the U.K.’s share will be 3 million, the agency said. Australia isn’t contributing to the IEA’s plan, according to Joel Grant, spokesman for the office of the Minister of Resources and Energy, by phone from Melbourne today.
Gulf War, Katrina
It’s the third time the IEA has coordinated the use of emergency stockpiles since the agency was founded in 1974. The first was during the 1991 Persian Gulf War and the second was after Hurricane Katrina in 2005. The Paris-based IEA is an energy policy adviser to 28 industrialized nations including the U.S., Japan and Germany.
Asia-Pacific airline stocks rose today as investors bet the additional crude oil will cut fuel costs. Jet fuel swaps for July fell 3.2 percent to $120.80 a barrel at 10 a.m. Singapore time today, the lowest since Feb. 18, according to data from PVM Oil Associates, a London-based oil broker.
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