Europe oil stocks sale begins, market confused

HAMBURG/LONDON Wed Jun 29, 2011 10:35pm EDT

Fuel pumps are seen at a Cepsa Petroleum petrol station in Cuevas del Becerro, near Malaga, southern Spain March 4, 2011. REUTERS/Jon Nazca

Fuel pumps are seen at a Cepsa Petroleum petrol station in Cuevas del Becerro, near Malaga, southern Spain March 4, 2011.

Credit: Reuters/Jon Nazca

HAMBURG/LONDON (Reuters) - Sales of emergency oil stocks began in Europe on Wednesday, as part of a plan by consuming nations to cool prices, but traders complained about confusing signals from different countries and industry lobbies warning of price spikes.

The West's energy watchdog, the International Energy Agency, shocked energy markets last week by announcing the release of 60 million barrels of oil and products to compensate for the loss of Libyan crude. The aim was to prevent high oil prices from hitting a fragile economic recovery.

In the United States, strategic petroleum reserve (SPR) officials were in daily contact with market participants to explain how 30 million barrels of public oil stocks would be released. In Europe, however, which suffered most from the loss of Libyan oil, the process looked less organized.

Germany became the first European country to launch tenders, and the Netherlands was expected to follow suit. But, the IEA said, its breakdown of the release of 19.2 million barrels of public and industrial oil and products by individual European country could still change.

"The bottom line is that we don't know how the breakdown will appear, and the numbers we have put in the table are preliminary and have probably over-exaggerated the weight of products," the agency's head of energy markets and security, Didier Houssin, told Reuters.

The Netherlands, set to offer close to 1.2 million barrels of crude but no products, was also expected to make the volumes available via tender. But traders in the region complained there was a lack of available information.

"I'm having a hard time getting information on the German and Dutch tenders," said a trader with a major player in the Netherlands.

In France, where 3.2 million barrels are to be released, a letter was sent to refiners and distributors to allow them to dip into their strategic stocks, according to Jean-Marc Tenneson, managing director of France's strategic stock committee (CPSSP).

Italy's Unione Petrolifera has said it will reduce minimum reserve requirements, and sent companies a break-down in tonnes of crude and product stocks.

But companies with reserves in Italy said, there were still doubts about how quotas would be distributed, adding that the final impact on the market would be minimal.

"Fifty thousand tonnes of diesel for the whole of Italy is equivalent to just one cargo. It won't have any impact," said a Mediterranean products trader.

UNCERTAINTY

PVM brokerage's Philip Wiper said, European firms charged with releasing products onto the market from industrial stocks have already been damaged by high sweet crude prices, because of the loss of Libyan crude.

The release will further depress products prices and refinery margins.

"Are the refiners really going to volunteer action that will damage their own interests? It may be that nothing like the additional 15 million barrels actually appear on the market," said Wiper.

Industry lobbies said their main worries centered around a potential need to replenish stocks once the IEA program was over. The IEA has said, its stocks release was a stop gap solution that could be suspended as soon as the agency sees incremental supplies from OPEC members hitting the market.

Both French and Italian petroleum industries have said they were concerned that buying back the products to replenish stocks will ultimately have a bullish impact on oil prices.

"The Union... has asked for the replenishment of the stocks to take place gradually, like in 2005, to avoid a distorting effect on the market," the industry body said, in a document to sent to companies operating in Italy.

But, industry responses in France were similarly disgruntled.

"This is a one shot solution. It's too early to say how much stock has already been sold. The products should be sold in a few weeks, sometime during the month of July," said the head of France's petroleum industry, Jean-Louis Schilansky.

In other countries, including Britain where commercial stock holders have no obligation to sell supplies, there was even less clarity about how the volumes would hit the market.

"The main question is, will commercial stock holders keep everything in tank, or produce/buy less over the coming weeks or months to get rid of it?," said a distillates trader.

(Writing by Dmitry Zhdannikov; Editing by Carole Vaporean)

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Comments (1)
breezinthru wrote:
I am concerned that the release of strategic oil reserves has become necessary. Saudi Arabia and Kuwait offered to increase production to make up for Libya’s lost production.

Either they changed their mind or they are simply unable to increase production by that amount. I surmise that they are already pumping as fast as they can.

If so, then there isn’t enough oil production capacity remaining to lift the US, Europe and BRIC into a strong economic recovery.

Jun 29, 2011 11:54pm EDT  --  Report as abuse
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