VIENNA The IEA order to release emergency oil stocks should be halted immediately, OPEC's Secretary General said on Monday at the end of cooperation talks with the European Union.
Years of producer-consumer harmony have come under threat after the International Energy Agency last week ordered the release of 60 million barrels of oil following the collapse of an OPEC meeting early in the month without a deal.
"I hope this practice will be stopped and stopped immediately," Secretary General Abdullah al-Badri told a news conference in Vienna following EU-OPEC dialogue.
"We don't see a good reason to release this quantity and I hope the IEA will refrain from using this practice."
The dialogue bringing together representatives of the Organisation of the Petroleum Exporting Countries and EU consumer countries has taken place every year since June 2005.
Typically, it has been an uneventful debate of topics including the impact of speculation and the need for regulation.
EU officials insisted Monday's talks had been constructive, although they accepted both sides had taken a different view of the IEA reserves release.
"Obviously, there was a disagreement on this particular issue," said Tamas Fellegi, president of the EU's energy council and also Hungary's development minister.
"Even if the IEA made this action, it has to remain extraordinary and limited in time, this is very important, and should not undermine the cooperation between the EU and OPEC and should not disrupt the market mechanisms."
Iran, current holder of the rotating OPEC presidency, was among seven members of the 12-nation producer group that blocked a Saudi-led proposal earlier this month to increase OPEC's output targets.
Immediately after the June 8 OPEC meeting collapsed without a new supply deal, leading exporter Saudi Arabia said it would pump all the oil the market needed, but the IEA still ordered a release from emergency stocks.
The IEA presented the emergency reserves release as a response to the loss of Libyan oil output to civil war, but Iran's Acting Oil Minister Mohammad Aliabadi said it was meddling that contradicted 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," Aliabadi told reporters on Monday.
Iran is not alone in arguing there is more to the IEA reserves release than meeting a supply shortfall.
Analysts have noted an economic element, as the world frets about the impact of oil prices above $100 a barrel on a fragile world economy, and a political element as U.S. President Barack Obama positions for re-election.
They also say the consequences could be severe for the oil market and any short-term price fall might not be sustained.
BP Chief Economist Christof Ruehl said in a television interview with Reuters Insider the single biggest risk for the oil market this year was "a war of attrition between OPEC and the IEA and that it goes on for a long time."
It could be a risk to both the upside and downside, he said, depending on the extent of both sides' response.
Brent crude fell to a session low of just above $102 a barrel on Monday, roughly 10 percent lower than the market close on Wednesday, the day before the IEA announcement. The price rallied slightly in late trade.
The IEA has had far more impact on the market than OPEC's inability to reach a new supply agreement and analysts said the producer group could be impotent for months to come.
"The big problem is that Iran has the presidency of OPEC in 2011 and is using it as a political tool," said analyst Olivier Jakob of Petromatrix.
"The statements coming out of OPEC are currently irrelevant as Iran has kidnapped OPEC and we will have to wait for 2012 to maybe see OPEC work again as an institution."
If the price falls too far, however, analysts predict OPEC could reunite as a force, just as it did at the end of 2008 when prices crashed below $40 a barrel.
The price collapse prompted OPEC to agree a record output cut of 4.2 million barrels per day.
That reduction theoretically remained in place until this month when OPEC's failure to reach agreement leaves all OPEC members at liberty to pump whatever they can.
After Iran moves aside as OPEC president, Iraq, which also opposed the Saudi-led push for an output increase at the June meeting, will take over at the beginning of next year.
(additional reporting by Daniel Fineren in Dubai; writing by Barbara Lewis; editing by William Hardy)