Crude Oil Market - Update

International Energy Agency (IEA) initiative to release the Crude oil stockpiles up to 2 million barrel per day for the next 30 days period of total 60 million barrels, starting from the end of current week, in an anticipation that crude oil demand will be surged because of refineries high demand in summer season. It is expected that North America will release 50 percent of the total, with European countries releasing some 30 percent and Asian countries providing the remaining 20 percent.

This is the third time IEA – member country  stocks have been used, after 1990/1991 Iraq’s invasion of Kuwait & 2005’s Hurricane Katrina  

IEA’s initiative coincides with the Saudi Arabia’s announcement of incremental increase in oil production, however, Saudi Arabia’s increase in incremental production will take some time while IEA’s initiative will readily  available in the global crude oil market from the end of current week.

This initiative of IEA is sort of an intervention (by net consumers) while Saudi Arabia’s move will bring structural changes in the crude oil market (by net producer). By the time, Saudi Arabia’s incremental oil will be available in the market, IEA’s supply bridge the demand-supply gap in the mean time. 

There is a disruption of 1.5 million barrel per day from Libya since February 2011 (late winter), however, some gulf producers enhanced their oil production to calm down the panic in the oil market, though couldn’t match the high crude oil quality produced in Libya (more lighter & sweeter with low sulphur content).

Summer season will drive the crude oil demand, therefore IEA stepped in an anticipation of high crude oil demand from refineries, especially in northern hemisphere.

Initiatives taken by IEA will make the crude oil prices to plunge in the short term because strategic reserve oil is the best replacement of Libyan crude oil which is lighter & sweeter while Saudi Arabia & other GCC countries initiative of incremental oil production will stabilize the crude oil prices in the medium term.

Going forward, further supply disruption from any of oil producing country or any threat to global economic growth could be significant events to direct the crude oil prices.

To increase the confidence of market participants, IEA through an official communiqué said “If supply remains disrupted and markets remain tight in the future, the IEA does not exclude another decision to make additional supplies available to the market”