The International Energy Agency’s (IEA) decision to release of 60 million barrels (MB) of oil from its strategic reserves over next 30 days raises several questions:
- Who is the IEA?
- How much is in the reserve?
- How significant is the release?
- Why was it done?
- What will be its long-term significance?
The IEA has 28 members: the US, UK, most European nations, Australia, Canada, Japan, and South Korea. The IEA does not have a reserve of its own. This 60 MB release will come from the reserves of its member nations.
The US Energy Information Administration (EIA) estimates there are 4.1 billion barrels of oil in global reserves, of which 1.4 billion are publicly held. The total public holdings are equivalent to 16 days of global oil consumption. Before this release, the US oil reserve contained 726 MB (its largest ever). The US reserve is the equivalent of 39 days of US oil consumption. The US share of the IEA release will be 30 million barrels (50%).
About 85 MB of oil are consumed daily or 31 billion barrels annually. So in the grand scheme of things, a release of 60 MB is not by itself of great significance. Table 1 traces global consumption of oil since before the global recession. The recession caused a dip. But demand has recovered sharply, as the demand of emerging nations picks up.
What Prompted the Release? – Several factors:
IEA Displeasure: IEA nations were not happy with the failure of the OPEC countries to vote an increase in production at last month’s meeting. The country voting pattern at that meeting has become fairly predictable. Saudi and other US “friends” supported the increase (Iraq has become a “friend” since the US invasion). The opposition was led by Iran, with Venezuela, Libya, Angola, Ecuador and Algeria also voting against a production increase.
Libya: Table 2 provides a comparison of the March 2010 and 2011 oil production in leading oil exporting countries. It is important to emphasize that part of these fluctuations are due to country-specific circumstances. However, the reduction in Libya’s production stands out.
OPEC countries voting for the production increases are colored in green while those opposing are colored in red.
Speculators: There is growing recognition that large sums of money are involved in global commodity speculation. The IEA release was at least partially intended as a warning to these speculators that at least some commodity prices changes are not controlled by them.
Longer Term Significance
The IEA release will have little significance in the longer term. The demand for oil will continue to grow as the demand of Western nations ultimately pulling out of the global recession will be added to current growing demands in emerging nations. Recent nuclear disasters will reduce uses of this fuel and thereby stimulate the demand for other energy sources.
In the US, the energy policy remains to keep gas prices as low as possible. The result? According to IEA data, the US now imports 68% of its oil, and that amounts to 24% of all oil traded globally. A problematic global dependency? Yes.
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