May 29 2012
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IEA Ready If Iran Sanctions Whipsaw The Oil Market- Forecaster
Tuesday, May 29, 2012
By Leia Parker and John Biers
Of DOW JONES NEWSWIRES
PARIS (Dow Jones)--World oil-market conditions could swiftly change this summer as Iran sanctions bite into supply, potentially compelling the International Energy Agency to initiate an emergency release of oil stockpiles, said David Fyfe, head of the agency's oil industry and markets division.
Describing today's oil market as "better supplied" than in other recent times, Fyfe said there is no active process at this time inside the IEA for organizing an emergency release.
But "the situation could change quite quickly," he said, adding that preliminary data suggest the speed with which sanctions took Iranian oil out of the market in April was at the high end of IEA expectations. "Nothing is ruled out."
The IEA last June surprised global oil markets when it initiated an emergency stockpile release of 60 million barrels to make up for lost Libyan output. This time, all eyes are on Iran.
In its May oil market report, the IEA estimated that between 15% and 25% of Iran's 3.3 million barrels a day of April production wasn't sold, but rather was moved into its own floating tanker storage.
As Iran struggles to sell much of its oil, however, other members of the Organization of Petroleum Exporting Countries -- led by top oil exporter Saudi Arabia -- have already helped consumers bear European and U.S. sanctions on Iran's oil exports by producing more crude oil so far this year, boosting global inventories. "Perhaps not coincidentally," these OPEC members have increased their output by about 1 million barrels a day, Fyfe said.
The International Energy Agency acts as OPEC's foil, defending oil consumers' interests while OPEC reflects those of oil exporters. But to some extent, their interests have recently converged. With OPEC members' help, oil supplies are more plentiful today, snapping a 10-quarter streak of declines in world inventories during the first quarter of 2012.
Yet there's a catch. OPEC's increased output has lifted global oil inventories but reduced Saudi Arabia's spare capacity -- its ability to quickly increase its oil production -- to just shy of 2 million barrels a day. World oil consumption is expected to average 90 million barrels a day this year, so a production cushion of that size is uncomfortably thin, Fyfe said.
"It's not a zero-sum game, but to a degree, what we've gained in terms of inventory we've lost in terms of spare capacity," Fyfe said. "The situation could change quite quickly."
Leaders of the Group of Eight major economies vowed May 19 to maintain pressure on Iran amid growing concerns about the country's nuclear program.
The G-8 nations said they "stand ready" to call on the IEA, which coordinates emergency oil stockpiles for major energy consumers, "to take appropriate action to ensure that the market is fully and timely supplied," according to a separate statement.
"There isn't a specific response plan in place at the present time or being worked on at the present time," Fyfe said of an emergency release. "But the market situation can change quickly."
As OPEC prepares to meet June 14 for the first time since December to set its output policy, Fyfe said the oil exporters could continue to help the global economy if they maintain current production levels and continue to invest in additional production capacity.
"We hope they continue to supply the market but don't do anything to further jeopardize what is still a fairly fragile recovery," Fyfe said. "Do I expect them to come out with great announcements about changes in quota or allocations? Probably not at this particular time. We have a fluid set of market dynamics, uncertainty around the global economy and uncertainty about Iranian supplies."
At more than $100 a barrel, oil prices remain stubbornly high for European and Asian consumers, even though they're slightly lower in North America because of enhanced domestic supply.
"Let's wait and see what OPEC says, but more important is what producers do," Fyfe said.
-By Leia Parker and John Biers, Dow Jones Newswires; +44 20 7842 9260; email@example.com
(END) Dow Jones Newswires
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