Ahead of the implementation of US and EU sanctions on Iranian oil sales and another round of talks with Iran over its nuclear program, G8 leaders have said they expect the International Energy Agency to take “appropriate action” to avert a spike in oil prices.
“There have been increasing disruptions in the supply of oil to the global market over the past several months, which pose a substantial risk to global economic growth. In response, major producers have increased their output while drawing prudently on excess capacity,” the official communiqué says.
“Looking ahead to the likelihood of further disruptions in oil sales and the expected increased demand over the coming months, we are monitoring the situation closely and stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied.”
Addressing the IEA is effectively a proxy for raising the prospect of a release oil from global strategic petroleum reserves (SPR), which include a US stockpile of crude currently at 659 million barrels, according to the SPR website.
The SPR was last used by the IEA last year, when 60 million barrels were made available to the market. Critics derided the move as ineffective in halting the march of crude prices to a recent peak of $128 a barrel.
The move may also be needless as Saudi Arabia has already disclosed that it holds a full stock of oil in its strategic facilities in Okinawa, Rotterdam and the US, totalling 60 million barrels, whcih it could release quickly while any additional production flows took time to reach consumers.
Iran is also stockpiling large quantities of crude, and may begin to sell it at a discount to avoid production shut-ins, easing supply margins.
High oil prices are an electoral liability for US President Barack Obama, as he seeks re-election in November against Republican opposition which has criticised his stance on the Keystone XL pipeline and made energy independence a mantra on the campaign trail.
Meanwhile, oil prices continue their downward trajectory as the prospect of a Greek banking collapse and subsequent Euro exit add to fears over Spain’s economy, fears of a ‘hard landing’ for Chinese industry and a high and stable supply picture.
The standard Brent futures contract stands at $106.94, down almost $21 from its peak on 1 March and its lowest rice since 21 December last year.
Reuters, citing U.S. Commodity Futures Trading Commission data, reports that hedge funds have their lowest collective long futures positions (ie betting on higher prices) on crude since late 2010.
