COLUMN-Obama nears dropping IEA fig leaf for oil release-Campbell
(Robert Campbell is a Reuters market analyst. The views expressed are his own)
By Robert Campbell
NEW YORK, March 15 (Reuters) - U.S. President Barack Obama, itching to pull the trigger on a fresh release from the strategic oil reserves to quell surging fuel prices, is getting closer to plunging into the market without backup from other Western nations.
Opposition to a fresh use of strategic oil stocks has come from European members of the International Energy Agency, threatening to slow any stock release.
In recent weeks senior European and IEA officials have downplayed the need for a release arguing there is no clear and present supply shortage in the oil market.
Top U.S. officials have said publicly in recent weeks that a U.S. oil release is among the options the government is considering but that no decision has been taken.
But Washington is clearly not willing to wait for a consensus to emerge. With gasoline prices moving up the list of concerns for Americans just as a general election looms, Obama will be keen to get extra crude onto the market in time to nip a further price increase in the bud.
In the clearest sign yet that independent action is getting nearer, British officials have said they expect a formal request to release oil to come from the United States "shortly" and that they have decided to cooperate in any "bilateral" action. [ID:nL5E8EF3O8]
Given the time it takes to get oil to the market, and the fact that much of the current tightness is not in the Atlantic basin but rather the Pacific, action must come sooner than later if it is to have the greatest impact.
(For a discussion of the logistical challenges see the following story: [ID:nL2E8DT2FY])
Indeed, it can be argued that the immediate impact of last year's IEA action in response to the civil war in Libya was blunted by the time it took for the group to agree on a release.
For the most part the absence of some European partners will not greatly diminish the impact of any action by the United States. The U.S. mainly holds its strategic stocks in the form of crude oil.
The support of the IEA mainly gives the United States cover for what is tantamount to intervention in the market. A bilateral accord with Britain is mainly a downgraded version of this cover, especially as London has relatively little in the way of strategic oil stocks.
The real question is just how the mechanics of any release might work. In 2011, the United States sold off sweet crude stocks which pushed American refiners to reduce imports of foreign sweet crude, allowing these cargoes to be diverted to Europe where supplies of light, sweet crude were extremely tight.
This year it is not so easy as U.S. imports of sweet crude have plunged. Purchases of Nigerian crude oil, generally light sweet grades, are down sharply as rising domestic light crude output displaces imports.
Preliminary data complied by the Energy Information Administration show imports of Nigerian crude oil averaging only 310,000 bpd over the last four weeks, less than half the average level in 2011.
That could curb the impact of any stock release simply because it would not displace as much imported crude oil as in 2011 as well as running the risk that U.S. refiners might not take up all the oil being offered due to plentiful domestic supplies.
As such, it seems likely that any release of oil from the Strategic Petroleum Reserve will include sour grades in order to maximize the amount of imported crude oil that can be displaced and freed up for buyers in Asia and Europe.
All this raises awkward questions that Obama appears determined to face.
In essence unilateral action, or near unilateral action with the token support of some allies, means the United States will be indirectly shouldering the cost to transfer crude oil stocks to Asia.
It also cannot appear to be nakedly political, coming the summer of an election.
It also cannot fail or risk being a massive embarrassment for the president. If too few barrels are pumped out of the SPR to make an appreciable impact on oil prices then Obama's opponents will have been handed another weapon to bash him with on energy policy.
But if the president is willing to gamble on intervening in the market without the support of allies he may also be willing to gamble with a much bigger release than the market expects.
(Editing by Bob Burgdorfer)
((email@example.com)(+1 646 223 4950)) Keywords: COLUMN OIL/SPR
(C) Reuters 2012. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing, or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
- Tweet this
- Share this
- Digg this
- Swedish 'Cold War' thriller exposes Baltic Sea nerves over Russia
- Bank of England suspends real-time payments system
- FTSE slips back, weighed down by oil stocks
- Sweden says credible reports of foreign submarine in its waters
- Turkey to let Iraqi Kurds reinforce Kobani as U.S. drops arms to defenders |