Rhein on Energy and Climate

In the wake of rising demand in Asia and a production short-fall due to the Libyan civil war. oil prices have risen by about about 25 per cent over 2010 level.

This has given rise to political concerns, especially in the USA. American consumers felt the full brunt of the price rise, while European and Japanese consumers were shielded off thanks to the appreciation of their currencies and high petrol taxes serving as a buffer between crude oil and gasoline prices.

The IEA effort to convince OPEC to raise production quotas failed. At their June 7 meeting OPEC members saw no need for such a measure, considering that there was no oil shortage in the markets.

The IEA therefore decided June 23 to raise global oil supplies by asking its 28 member countries to open their strategic stocks and pump up to two million barrels/day into the market during the next 30 days.

This is not a wise decision. Most likely the USA has pushed IEA members to go along with a political gesture that would provide its citizens cheaper gasoline during the vacation time.

The IEA member states had created strategic stocks in 1974 to be able to do without OPEC supplies for 90 days. It was a justified decision to arm themselves against politically motivated oil embargoes. Only twice since then have the IEA members thought necessary to draw on their stocks, in the 1990 Gulf War and the 2005 Katrina Hurricane.

The present market situation does not warrant an intervention from the strategic stocks. The market has well adjusted at a level around $ 115/b for North Sea Brent to the shortfall of Libyan supplies.

There was no reason to precipitate, quasi over night, a spectacular price fall of 7 per cent. It will not be sustainable and only deceive consumers for a few weeks about the inexorable trend of rising fossil energy prices .

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