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U.S. studies oil reserve release to dampen prices
Reuters
Gasoline drips off a nozzle at a gas station in Altadena, California in this file photo taken March 24, 2012. (REUTERS/Mario Anzuoni/Files)
Gasoline drips off a nozzle at a gas station in Altadena, California in this file photo taken March 24, 2012. (REUTERS/Mario Anzuoni/Files)
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WASHINGTON: The White House is “dusting off old plans” for a potential release of oil reserves to dampen prices and prevent high energy costs from undermining sanctions against Iran, a source with knowledge of the situation said.

U.S. officials will monitor market conditions over the next few weeks, watching whether gasoline prices fall after the Sept. 3 Labor Day holiday, as they historically do, the source said.

It is too early to detail the size of any release from the U.S. Strategic Petroleum Reserve and other international stockpiles if a decision to proceed is taken, the source said.

Oil prices have surged in recent weeks, with Brent crude prices closing in on $120 a barrel, up sharply from below $90 a barrel in June. The United States and other Group of Eight countries studied a potential oil release in the spring but shelved the plans when prices dropped.

As prices rise again, U.S. officials are now collecting information from the market about potential needs and studying futures, production numbers and data on Iranian oil exports.

“The driving force in this is both impact on the economy and impact on the Iran sanctions policy,” the source said, noting that Washington did not want rising oil prices to create a windfall for Iran while international sanctions were having an effective impact on its crude exports and revenues.

The U.S. has not yet held talks with international partners about a coordinated move. The source noted that Britain, France, Germany and other partner nations in the Paris-based International Energy Agency were receptive to a potential release a few months ago when conditions were similar.

Those countries were concerned about the impact of high oil prices on the global economy and Iran then, and those concerns remain equally relevant now.

“The logic behind a potential release in the spring is at least if not ... more true today,” the source said.

Within the United States, tapping reserves could spark criticism from Republicans, who would cast it as a political move to boost Democratic President Barack Obama’s chances in the Nov. 6 election.

The source said the White House had not discussed political ramifications because a decision on a release had not been made.

A White House spokesman declined to comment.

Gathering support from partner nations is likely to be the next step as Washington studies its options.

In May, the G-8 put the IEA, the West’s energy adviser responsible for coordinating reserves, on standby for action, a sign at the time that Obama was winning support for tapping government-held oil stocks for the second time in two years.

Some IEA nations could object to a release now because market conditions are less tight than they were in the spring, the source said.

Saudi Arabia and Iraq are producing more and the supply disruption related to Libya has been resolved.

Germany and some other European nations have generally resisted using government-held oil inventories in the absence of a sharp and deep disruption in supplies.

Britain’s Energy Ministry said Friday it was prepared to ask the IEA to act to deal with high oil prices, but added that no decision had yet been made on any release of stocks.

“The market remains very tight,” a U.K. ministry spokesman said.

“This has a knock-on impact on the oil price and therefore the global economic recovery.”

France and the United States are in contact on recent oil price rises.

“We are consulting our American partners on all issues, including containment of oil prices. All options are being studied,” an official at the offices of French President Francois Hollande told Reuters, speaking on condition of anonymity.

Asian IEA members Japan and South Korea saw no need yet for a release from reserves, government sources said Friday.

“It is not as if Japan is short of oil,” said a Japanese government source who declined to be named due to the sensitivity of the matter. “Stock releases are not done when the price is high but when supply is insufficient. Supplies are sufficient now.”

Japan and South Korea are among Iran’s top oil buyers and have cut imports to gain waivers from U.S. sanctions. Despite having to rely on costly alternatives to Iranian oil, South Korea did not believe prices were high enough yet to warrant a release, a government source said.

“I don’t think any member will agree to the oil release at current price levels, considering the release was not made a few months ago when oil prices hovered at much higher levels,” said the source who also asked to remain anonymous.

Although the loss of over half the Islamic Republic’s oil exports is about equivalent to the drop in Libyan shipments that prompted IEA action last year, the decline has been relatively gradual and global commercial oil inventories remain relatively well-supplied for this time of year.

Last year, the United States and the IEA announced a coordinated drawdown of 60 million barrels in response to outages in Libya and other places, Brent oil prices fell 6 percent, or nearly $7 a barrel, to about $107 a barrel.

A week later the prices were back to about where they had been, though analysts say the drawdown could have stopped prices from going even higher.

 
A version of this article appeared in the print edition of The Daily Star on August 18, 2012, on page 5.
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