Last month, the International Energy Agency released 60 million barrels of oil (NYSE:USO) from its energy stockpiles for one month in order to combat Libyan supply disruptions. The release immediately pushed down high oil prices to below $90 a barrel, but since then price of crude has been in daily flux, and the actual utility of the release has been relatively unclear. Today, IEA executive director Nobuo Tanaka says the agency has not yet decided whether it will release a second round of emergency oil reserves.
According to Tanaka, the release last month came as a result of Saudi Arabia’s inability to convince other members of OPEC to increase production, and he considers it to have been a success. “Whether to release further or hold on to wait and see is a matter of decision [for member countries],” said Tanaka. For now, the IEA believes Saudi Arabia’s increased production is enough to stave off the need to release more reserves, though Saudi output will continue to be monitored. Before June’s reserve release, the IEA had held consultations with Saudi Arabia and received a pledge that they would keep output at raised levels. After OPEC refused to back a deal to raise output, Saudi Arabia independently increased output by 700,000 bpd in June, to 9.8 million bpd.
The IEA is currently consulting OPEC’s 28 member countries and should be able to decide whether to draw from emergency stocks by July 23. While Saudi Arabia may be increasing output, Tanaka worries that demand is increasing even faster. A new oil market report suggests that demand for OPEC crude and stock grew by over 1 million bpd in July. However, some of the IEA’s 60 million bpd release should cover a large part of increased demand in July. “Our assessment on how and how much our released oil is entering the market in July is still on, but I think more than half of the over 1 million bpd is covered by our stock release,” says Tanaka.
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The 30-day deadline for assessing the impact of the first reserve release comes at the end of this week, at which point the IEA will decide whether a second release is warranted. Germany (NYSE:EWG) and Italy (NYSE:EWI) are expected to oppose another release after they opposed the last release in June. Tanaka says the IEA has enough oil reserves to make releases the size of June’s each month for 24 months.