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Oil release: West wants Saudi assurance

London, March 29, 2012

Oil consuming nations may seek reassurance from Saudi Arabia that it will not cut oil production and neutralise the impact on oil prices if consumer countries release emergency reserves, diplomats and industry sources said. 

The issue may be raised by a US delegation, led by US Secretary of State Hillary Clinton, which is in Riyadh this weekend to discuss Syria with Gulf states. Clinton will see Saudi King Abdullah and Foreign Minister Saud Al-Faisal. 

"If they're going to release reserves they need an assurance from the Saudis that they won't offset it by cutting supply," said one industry source familiar with thinking in Washington. "There's no doubt the measure needs the cooperation of Saudi Arabia," said a diplomat. 

The US, with Britain and France, is considering a release from emergency stockpiles to cut fuel costs. Other countries including South Korea and Japan may join the plan. 

Riyadh would not want deliberately to undermine an effort to bring down oil prices. But it might reduce supplies in response to a release of oil drawn from reserves if that were to displace Saudi supplies, particularly in the United States where the national Strategic Petroleum Reserve would provide the bulk of any drawdown.

Oil prices have risen sharply since the start of the year, at one point breaking $128 a barrel, largely because of sanctions against oil producer Iran aimed at slowing Tehran's nuclear programme.

Diplomats have said the sanctions aim to meet Israeli demands for action against Tehran by hitting Iran's oil earnings and to prevent the alternative - a military strike by Israel.

"The view is that higher oil prices are a price worth paying to prevent or push back a war against Iran and higher oil prices can be alleviated by using emergency stocks," said the industry source. 

Saudi Oil Minister Ali Al-Naimi has said publicly that Riyadh wants to bring down oil prices.  But he has also said that Saudi can do no more than meet demand for its crude, which it is already doing, and that the previous drawdown of oil reserves last June during the Libyan civil war did not work.  

"That's up to them," he said to reporters in Doha last week of a possible consumer country release. "What I can tell you is that they have done it before and it didn't do anything. You saw what happened in the last release? Nothing." 

The concern among Western diplomats is that oil from strategic stocks could displace Saudi barrels, particularly to the US where Saudi imports have risen recently, leaving net supplies globally little changed. 

Last year after the International Energy Agency tapped reserves at the end of June to fill the gap left by Libya's civil war, Saudi output at first remained high, and then fell. Reuters estimates put Saudi production at 9.85-9.9 million barrels per day from July to September before falling to just over 9.4 million bpd in October and November. It has since risen steadily back to about 9.9 million bpd now.  -Reuters




Tags: Saudi Arabia | Iran | West | oil reserve release |

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