US, Britain Set to Agree on Emergency Oil Stocks Release
Britain is poised to cooperate with the United States on a release of strategic oil stocks that is expected within months, two British sources said, in a bid to prevent fuel prices choking economic growth in a US election year.
A formal request from the United States to the UK to join forces in a release of oil from government-controlled reserves is expected “shortly” following a meeting on Wednesday in Washington between President Barack Obama and Prime Minister David Cameron, who discussed the issue, one source said.
Britain would respond positively, the two sources said, and Cameron said a release was worth considering.
“We didn’t make any decision, this has to be discussed broadly. We’ve got to look at this issue carefully, it’s something worth looking at. Short-term should we look at reserves? Yes, we should,” Cameron said during a meeting with students in New York.
“We’d both like to see global oil prices at a lower level than they are.”
Details of the timing, volume and duration of a new emergency drawdown have yet to be settled but a detailed agreement is expected by the summer, one of the sources said.
Other countries may also be approached by Washington to contribute, a further source said, Japan among them.
White House spokesman Jay Carney said Obama and Cameron discussed rising oil prices, but he declined to comment on whether the leaders discussed a release of reserves. He said no deal had been reached on a release or timetable for such a move.
“As has been the case every time I’m asked about that issue (the Strategic Petroleum Reserve), I’m not going to discuss specifics about it,” Carney said.
“I can tell you that among the many topics of discussion that the British prime minister and the president had were energy issues and the situation globally with the rise in the price of oil.”
Rising world oil prices have pushed the cost of gasoline in the US up sharply, threatening to stall economic recovery ahead of Obama’s bid for re-election in November.
Brent crude has gained more than 15 per cent since January to a peak of over US$128 a barrel, in a repeat of last year’s spike in fuel costs when the loss of Libyan oil supplies during civil war triggered a coordinated International Energy Agency (IEA) stock drawdown.
Brent for May tumbled US$1.98 to settle at US$122.60 a barrel on Thursday, while US crude fell 32 cents to US$105.11.
Previous emergency oil releases have been coordinated by the Paris-based IEA to meet its mandate to cover substantial supply disruptions on the world oil market.
The IEA has declined to coordinate a broader release among its 28 industrialised members, but says that countries may legitimately decide to release oil unilaterally.
“The Obama administration can only take so much political pain from rising gasoline prices, which pose a serious threat to the economy and the president’s re-election,” said Bob McNally, a former White House energy adviser and head of US energy consultancy Rapidan.
“SPR (Strategic Petroleum Reserve) use is more a matter of when than if. The administration strongly desires international support and coordination from other strategic stock holders, but is encountering stiff resistance from some IEA members who think strategic stocks should only be used for severe supply disruptions,” McNally said.
Top US officials including Energy Secretary Steven Chu and Treasury Secretary Timothy Geithner have said publicly in recent weeks that a US oil release is among the options the government is considering.
While there is no significant disruption of world oil supplies at the moment, sanctions on Iran are expected to cut its output when a European Union embargo takes effect from July.
Minor stoppages from South Sudan, Yemen and Syria also have contributed to the rise in oil prices.
“At the moment there is no need to use it,” IEA executive director Maria van der Hoeven said of reserves at an industry conference in Kuwait on Wednesday.
“There is more supply coming to the market from OPEC countries. There is no price trigger for the stocks release, the trigger is a disruption in physical supplies.”
“There is no real supply disruption, this is just price management”, said Olivier Jakob from Vienna-based consultancy Petromatrix.
OPEC’s biggest producer Saudi Arabia, the only oil producer with any spare capacity, has said it is prepared to fill a supply gap but will only do so to meet additional demand, rather than as a preventative measure.
While the US release would be of crude oil from the national SPR, the UK contribution is likely to come from a reduction of the minimum reserves of crude and refined products that UK commercial oil companies are required to hold.
The United States has sold crude oil directly from the 700-million barrel SPR only a handful of times, almost always in conjunction with the IEA.
In addition, the US Department of Energy has arranged unilateral short-term loans from the reserve about a dozen times since it was filled in the 1980s, typically in much smaller amounts.