IEA grapples with crude realities

Crude consumers and producers are rarely on the same page — hand in hand — together. They occupy the opposite sides of the table and the difference is understandable. Their interests, mostly, diverge. Yet for a change now, the International Energy Agency, the consumers’ watchdog, and major crude producers seem converging on the moot point — there is enough capacity to meet the emergency — in the event Iran sanctions start to bite. Saudi Arabia will be able to pump enough oil to compensate for any loss of Iranian output caused by Western sanctions, the head of the International Energy Agency (IEA) conceded on Friday. A welcome change from past indeed! “There is no fear of disruption of supplies and you know Saudi Arabia is going to bring more oil to the market,” Maria van der Hoeven, IEA executive director underlined. Saudi Arabia has been assuring the markets of adequate supplies — in case needed — for some time now. The Saudi cabinet reiterated recently that in order to ensure and sustain global economic growth, the Kingdom would continue to provide as much crude as is required by the world. The council of ministers asserted that excessively high petroleum prices threaten the global economy and that a downturn would lead to an abrupt pullback in prices, hurting the interests of both — the oil exporters and the consumers. And then on Tuesday, Petroleum and Mineral Resources Minister Ali Al-Naimi underlined that oil markets are amply supplied. ''My only mission is to convey to you that there is no supply shortage in the market,'' he told a media briefing in Doha, Qatar, adding supplies were now outpacing global demand by more than 1 million bpd and that current prices were ''unjustifiable''. He said Saudi Arabia could boost output, by almost 25 percent, to 12.5 million barrels a day to meet demand but customers do not seem interested in buying more oil. “We ask the customers, ‘Do you need more?’ And invariably, the answer is, ‘No, thank you,’” he said. And the words were music to many ears. Obama administration was immediately on toes welcoming the Saudi decision to fill any oil supply gap. "I want to welcome very much the statements made by the Saudi authorities over the last couple of days that they will take further action to increase the supply of oil in global markets," US Treasury Secretary Timothy Geithner said. "A very constructive signal," he told a US House of Representatives Financial Services Committee hearing to examine the state of the global financial system. But despite all the assurances, markets appear reacting to the events – at the slightest pretext. Gas prices are on a rise all around. The spike in oil and gasoline prices, already closing in on $4 a gallon, has become a key theme this US election year. The White House is worried, mulling ways to bring prices down. This is a testing time for President Barack Obama and the team. Election is approaching, drivers are grumbling and his opponents are coming up with plans to drive down petrol prices to as low as $2.50 a gallon. And as a short — term solution, Obama administration is looking up to free some crude from its Strategic Petroleum Reserves. The SPR holds 700m barrels of crude in vast underground caverns strung along the Gulf of Mexico. Set up in 1975, it is intended as a buffer against economic meltdown in times of national emergency. It has been tapped during and after Gulf wars, the devastation wrought by Hurricane Katrina in 2005 and more recently in the immediate aftermath of the Libyan outage last year. Most of these withdrawals were made in concurrence with the Paris based International Energy Agency. However, when last time the reserves were utilized, during the Libyan outage, Washington had to really put its weight in Paris – before nudging everyone at the IEA on board. And this time, despite the push from Washington, the IEA seems to be standing up to the pressure – underlining – that the SPRs are not basically meant to tame the markets. The IEA seems to be asserting itself against the domestic US politics requirement, emitting a very essential message; the strategic stockpile should be held back for a genuine emergency. Ambassador Richard Jones has a task in hand! And this is a very interesting development. The IEA sees no need to release oil from the strategic reserves as yet, Van den Hoeven said on Friday, adding that currently there is “no serious disruption of supplies”. France and Germany too seem to be opposing any emergency release of oil stockpiles, which they believe should be used to offset supply disruptions rather than tame oil prices, officials from both countries said last week. "There is nothing planned here (in Germany)," a spokeswoman for the German Economy Ministry in Berlin said. "The oil reserves are meant to be there for physical bottleneck situations. There is not such a case at the moment." A French official with direct knowledge of the matter also said recently that France had no plans to join any stocks release. "There is a very strong reluctance (in France) to play that game," the French official said. "France has no desire to take part in operations that aim to tame prices," the source said adding that France restricts stock releases to cope with supply disruptions. And it was perhaps in this backdrop that President Obama banked on the political support from visiting British Prime Minister David Cameron. After the meeting, the two sides said they had discussed releasing oil from strategic stockpiles. Interestingly, Cameron has no such reserves at his disposal, yet his support would provide some political cover if Obama decided to release oil from the SPR without a backing from the International Energy Agency. Politics remains the name of the game — oil — one can’t deny especially at this juncture. Every move being made on the global energy chess board, seems revolving around politics — and nothing else — but politics. And at the altar is the global energy balance and stability. The world may have to pay a price, and may be a steep one, for this political expediency. Tinkering with the fundamentals has neither helped in past nor would do so in future. But people who matter in distant Washington — seem least ready to hear and pay any attention to the simple message.