This is not a drill: oil-consuming nations find temporary relief in emergency stockpile
IEA’s decision to dip into its emergency oil stock was settled only three hours before being announced, following the ‘failed OPEC meeting’. Will its intended shockwave really create an impact?
June 29, 2011 11:52 by Precious de Leon
The International Energy Agency’s (IEA) is going for Plan B, after the failing to convince oil producers to increase production. They’re going at it alone—at least until Saudi Arabia is able to make enough of its promised increased production or until the next OPEC meeting in December.
All 28 members have unanimously dipped into their emergency stockpile, releasing a collective 60 million barrels or just under four percent of its total reserves.
Discussions started in May and led by the US, where, as a Reuters report put it, “fragile economies are ill-placed to cope with the strain of expensive oil.
This is only the third time IEA has used its reserves, since it was founded in 1974. The first time was in 1991 at the time of the first Gulf War and in 2005 after Hurricane Katrina ripped through oil infrastructure in the US Gulf, according to a Reuters report.
In other words, the only two other times this strategy has been done is during a war and a natural disaster. So which category does this third emergency dip come under?
Using up some of its reserves has the intended result of course, with the Brent crude price dropping by about six percent. Less demand from the IEA members, after all, could only mean a drop in prices.
But while this is admittedly a welcomed temporary relief, how ‘temporary’ will it be, especially considering that Asian markets continue to increase their demand for oil, thereby maintain or even increasing demand for oil anyway. It’s easy to see that this ‘pre-emptive move’ as the IEA head called it, may end up being a moot effort.