so i don't get it: is it real demand or is it just speculators playing? and if the latter, is this part of a plan to create a glut and depress prices for the fall?
Western Nations
Urged Not to Tap
Oil Stockpiles
Energy Agency Head Says
Reserves Should Be Used
Only in True Emergencies
By BHUSHAN BAHREE
Staff Reporter of THE WALL STREET JOURNAL
May 20, 2004; Page A2
As Western energy czars and OPEC ministers prepare to meet this weekend in Amsterdam to discuss remedies for record oil prices, the head of the International Energy Agency advised oil-importing governments to refrain from tapping their stockpiles to try to drive down prices.
In an interview, Claude Mandil, the chief of the industrialized world's energy watchdog, warned that such a strategy would deplete emergency reserves and could spark a futile battle with speculators.
Mr. Mandil's remarks came amid mounting calls for oil-importing nations to tap reserves or take other action to check oil prices. Oil is at 21-year highs, threatening to choke off the global economic recovery, though prices have gone considerably higher in the past when adjusted for inflation. U.S. benchmark oil closed at $41.50 a barrel on the New York Mercantile Exchange, up 96 cents.
President Bush, who has been barraged with such calls from Democrats, rejected the idea again yesterday, saying, "We will not play politics with the Strategic Petroleum Reserve," the U.S. stockpile.
ASIA'S THIRST FOR OIL
China and India are developing an addiction to oil. As the world's two most populous nations industrialize, their demand for oil is putting them on a collision course with another big consumer: the U.S.
Western governments are ratcheting up their demands that the Organization of Petroleum Exporting Countries act to tame prices. British Chancellor of the Exchequer Gordon Brown yesterday insisted that OPEC boost supply to bring prices down to within the cartel's informal target range, which is $22 to $28 a barrel for a basket of crude-oil types. The OPEC gauge has soared to $36.93, or 32% above the top of the band.
The energy politicking will doubtless heat up this weekend at the Amsterdam summit, where the key questions probably will be: Can exporters deliver enough oil to fuel a faster-than-expected world recovery? Or have oil markets, stretched by soaring demand, geopolitical jitters and thin spare capacity, spun out of control?
OPEC ministers are expected to discuss an output increase. Saudi Arabia, the country with the greatest capacity to boost output on short notice, already has called for raising the cartel's output ceilings, but traders doubt much more oil will be forthcoming and so prices have barely budged.
Until recently, OPEC, led by Saudi Arabia, had an informal understanding with the 26-nation IEA, under which the Western countries would refrain from using their stockpiles in emergencies so long as OPEC supplied the world with all the oil it needed. At a summit in 2000, the two sides also informally agreed that both could live with an oil price within the OPEC range.
The entente worked in 2003, when OPEC ramped up supply ahead of the Iraq invasion to reassure markets that global demand would be satisfied. But with prices well above the band, the entente is in shreds. Western governments blast OPEC for having restricted supply this spring, preventing inventory cushions from building up. OPEC points to soaring demand in countries such as the U.S. and China, plus geopolitical fears heightened by the U.S. occupation of Iraq.
Mr. Mandil, who as chief of the IEA helped steer the informal arrangement with OPEC, sidestepped questions about whether the accord has broken down. "Our discussions with producers did not succeed, that is true," he said. "At the same time, we have never lost contact with them." Still, he said, the IEA countries shouldn't tap their strategic stocks to tame prices. Doing so, Mr. Mandil said, would rob the world of a buffer in the event of a true emergency shortfall of oil.
He also cast doubt on whether sustained intervention would work. The surge in oil prices stems partly from traders' knowledge that the global supply chain is stretched to near its limit. Some OPEC officials calculate that world crude-oil production is running at 97% of capacity, leaving a thin cushion of two million barrels a day.
While IEA members' stockpiles equal about 100 days of their imported-oil needs, the same stockpiles equal just 10 days of trading volume on oil markets, Mr. Mandil said. That is too small a pool to mount a sustained battle against speculators, who probably wouldn't ease up on prices for more than a few days. "It will not work," Mr. Mandil said.
The U.S. has tapped its strategic reserve before to fight higher oil prices. The Clinton administration released 30 million barrels of oil from the reserve in fall 2000, when prices were above $35 a barrel. The move quickly brought prices down to the low $30 range. Back then, the oil-producing world had a large amount of spare capacity, so the use of the stockpiles packed a punch, since traders believed the government had the ability to create a glut. Today, the chances of a glut seem remote.
