The International Energy Agency (IEA) plans to refrain from releasing further strategic reserves into the market, while stressing the need for vigilance over future supply from Libya and members of oil producers group Opec.
The agency, which represents the 28 crude consuming countries, started to release 60 million barrels of crude on 23 June under the Libya Collective Action programme to compensate for the loss of Libyan exports.
After completing a 30-day review of the action late in July, the IEA has decided not to add to this number.
“While we are not now seeking the release of additional stocks, the action is not yet complete as stocks are still entering the market,” it said in a statement.
In addition to the reserves still flowing into the market, increased output from Opec members is now compensating for the loss of Libyan production. According to IEA estimates, Opec production rose by 840,000 barrels a day (b/d) to 30.03 million b/d in June, and could rise by a further 150-200,000 b/d in July.
The release of the stockpiles performed a vital function in delivering crude to the market before a rising oil price could harm recovering economies.
“The IEA did not intend to lower future crude prices,” says Christine Tiscareno, energy analyst for Standard & Poor’s Equity Research. “They did it to bridge a gap between rising crude demand and the release of Saudi Arabia’s additional production to satisfy that demand. Importantly, they did it to avoid derailing the fragile economic recovery in OECD countries.”
Gulf oil producing countries had defied opposition in the Opec ranks by increasing production in June in response to the Libya crisis. The IEA helped bring Opec members opposed to Saudi Arabia’s implicit leadership of the group back into line with the kingdom’s consumer friendly policy, says Tiscareno.
“The ‘troublesome Opec members’ that refuted the increase of additional crude supply quickly issued a statement after the release and communicated to the IEA that it was not necessary to release reserves and that they would like to cooperate with them in future. Basically it showed them that they cannot use blackmail to suit their purposes. Next time I don’t think they will give Saudi Arabia such a hard time.”
To keep up the pressure on renegade Opec members, the agency does not seem to rule out the possibility of further releases in future.
“A number of uncertainties remain which demand vigilance, notably the duration of the Libyan disruption, the future evolution of Opec supply, as well as the final impact of the stock release itself,” it says.