WASHINGTON (Reuters) - Oil consuming nations said they stood ready to tap into emergency stocks if Saudi Arabia didn’t quickly pump more oil, responding with dismay to OPEC’s failure to agree an increase in output Wednesday.
Unusually blunt references from both the White House and the International Energy Agency to drawing down the industrialized world’s 1.5 billion barrels in government-controlled oil inventories follows the shocking breakdown in talks of the Organization of the Petroleum Exporting Countries in Vienna.
With OPEC failing to reach agreement for even a modest increase in production, consumers put their hope in the group’s top producer Saudi Arabia, which insisted it would pump more unilaterally to ensure that a shortage of oil didn’t cause another crippling price spike.
“If Saudi cannot fill the whole gap ... we have to move by releasing oil stocks,” Nobuo Tanaka, the executive director of the Paris-based IEA, the industrialized world’s energy watchdog, said at an oil conference in Washington.
He said the IEA would know in a few weeks if the kingdom had ramped up output.
“We are ready to move,” he said,
Tanaka said the IEA was pleased some key OPEC members were willing to make more oil available. But it was disappointed OPEC could not agree to an output hike, even after an unusually frank plea from the agency last month.
White House spokesman Jay Carney said after the OPEC meeting the administration was concerned about a lack of supply and that it was keeping the option open to use the 727 million barrel U.S. Strategic Petroleum Reserve.
“We believe that we are in a situation where supply does not meet demand,” Carney told reporters, one of his strongest statements to date on the market outlook.
Those statements underscored the deep unease in the industrialized world about the danger of $100-plus oil prices to a fragile global economy, and the willingness to use any available tools to fight them.
Oil prices jumped by more than $2 a barrel after the OPEC meeting broke up, but ended off those peaks after traders factored in the possibility of tapping into reserves.
The IEA coordinates government-held oil reserves on behalf of its 28 members, a supply-of-last-resort meant to be used only in the event of an emergency. The last global release occurred in the wake of Hurricane Katrina in 2005.
But with civil war in Libya effectively halting the country’s 1.5 million barrels per day (bpd) of production since March, analysts say President Barack Obama may have all the cover he needs to push ahead with a rare reserve release.
Obama said in March the administration has a plan “teed up” to use the SPR, should there be significant supply disruptions or shifts in the market. The plan could be executed in days, not weeks, should it be needed, he said then.
While extra supplies of oil from stockpiles can be an effective tool to push down prices in the short-term, analysts say they may be inadequate to fill a long-term gap in supply. And using them once reduces the amount of oil left to fill future emergencies, potentially adding to a risk premium.
The president has been under pressure from Republicans and motorists to bring down gasoline prices and that could rise if oil stays above $100 a barrel as next year’s elections approach.
Prominent Democratic U.S. lawmaker, Representative Edward Markey also put pressure on the administration to tap America’s emergency oil reserves and put more pressure on the oil cartel.
“OPEC, led by Iran and Venezuela, has snubbed its nose at the United States and the rest of the Western nations addicted to OPEC oil,” said Markey, the top minority party member on the Natural Resources Committee in the House of Representatives, said in a release.
“This is a clear sign that America must engage in a long-term plan to break our ties to this OPEC-controlled market, and prepare to deploy America’s oil reserves now to head off an economic collapse from continued high gas prices.”
Additional reporting by Muriel Boselli in Paris, and Tom Doggett, Jeff Mason and Steve Holland in Washington; Editing by Russell Blinch and Marguerita Choy