A war of words could erupt between oil-consuming nations and oil producers, after the IEA (International Energy Agency) – representing 28 oil-consuming countries – announced last Thursday that it would release about 2 million barrels of oil per day from its emergency stocks over the next month in order to boost supply and drive down prices.
“I hope this practice will be stopped and stopped immediately,” said OPEC (Organisation of Petroleum Exporting Countries) Secretary General Abdallah El-Badri after a meeting between OPEC and EU officials in Vienna on Monday. “We don't see a good reason to release this quantity, and I hope the IEA will refrain from using this practice.”
IEA’s decision came after OPEC nations failed to come to an agreement to increase its oil outputs in talks held earlier this month.
This is only the third time in its 37-year history that the IEA has released emergency stocks into the market. The first incident was during the 1991 Gulf War and was followed fourteen years later after Hurricane Katrina affected US production of oil.
IEA's executive director Nobuo Tanaka declared its decision as a “pre-emptive” move designed to temporarily fill a gap in supply caused by the Libyan crisis.
“It's a pre-emptive use, in that way this is a new mechanism," Tanaka said. "We decided pre-emptively to move toward seeking a soft landing for the global energy market.”
However, OPEC are upset; particularly after Saudi Arabia had earlier pledged to increase its own oil production to meet international demands.
Although IEA appear to be confident in Saudi Arabia’s ability to produce more oil, Tanaka said on Tuesday that, “we (the IEA) think it may take some time so we are filling the gap in the meantime.”
OPEC remains unconvinced. "The market is under normal conditions. Supply and demand are desirable. There is no additional need for supply in the market," said OPEC President Mohammad Aliabadi.
He proceeded to slam the US and the EU for not sticking to their own free-market principles.
"Why they are not abiding by those principles is really a big question for us. We believe that prices should be set by the market itself.”
Some analysts have already expressed concerns over a possible retaliation by OPEC.
“If this release is not coordinated with Saudi Arabia, the Saudis will cut production to neutralize the effect of the release,” said Anas Alhajji, chief economist at Irving, Texas-based NGP Energy Capital Management, in an interview with Bloomberg news.
BP chief economist Christof Reuhl told Reuters that, “the single biggest risk up is that there is a war of attrition between OPEC and the IEA which goes on for a long time and leads nowhere.”
However he added that this was merely a “theoretical extreme” and “for the medium term we will see a settlement in between the peaks the oil price had recently and what seems to have been OK with major consumer companies about a year ago."
Story from Oil and Gas Journal