US officials worry about fuel prices

U.S. officials fret emergency oil won't ease fuel prices: sources

Obama administration officials told energy experts this week they worry a release of crude from U.S. emergency reserves would do little to temper global oil prices partly driven by tighter supplies of refined fuel like gasoline.

Reuters,

8 September, 2012

At an informal consultation on Thursday, mid-level officials from the National Security Council, the Department of Energy and other bureaus made clear a top concern was tight oil product markets caused by constraints in refining capacity, two outside energy experts who attended the meeting said on Friday.

The meeting coincides with rising speculation President Barack Obama may order a release of oil from the Strategic Petroleum Reserve (SPR) to control high gasoline prices and prevent high crude prices from undermining sanctions on Iran.

Reuters reported last month that the White House was dusting off plans from the spring for a potential release from the oil reserves, which currently hold a little under 700 million barrels of oil, all of it crude.

However the tone of Thursday's meeting suggested some of Obama's advisors question whether the United States has sufficient refining capacity to handle a release of crude from emergency reserves.

"None of them were thinking there's any reason to be drawing down the SPR," one expert said of the officials. "They are certainly worried about the prospects for prices to go higher in the near term because of a variety of factors."

Officials ticked off supply disruptions or threats to oil output in Yemen, Sudan and Syria, as well as the added strain over the huge Amuay refinery in Venezuela, which has been partially shut since a deadly fire two weeks ago. And sanctions on Iran are steeply cutting exports from the OPEC member.

In addition, officials were concerned that gasoline prices, currently averaging more than $3.82 a gallon, or more than 17 cents higher than the same time last year, according to AAA, were still rising after the Labor Day holiday.

As the November 6 election nears, high gasoline prices are a growing headache for President Barack Obama.

A White House official confirmed the meeting with the oil market experts occurred on Thursday and that such talks happen periodically. The official would not comment on what happened at the talks, attended by mid-level officials who advise decision makers on use of the SPR.

REFINING SQUEEZE

A top concern was not about global crude supply, but that refining capacity was low, diminishing the ability for plants to turn SPR crude quickly into gasoline, diesel and heating oil, the energy expert said.

"We don't have refinery capacity to really have much impact on gasoline prices," the source said.

Worries over capacity are an abrupt turn-around from just six months ago, when an industry in the midst of a deep cyclical downturn was shutting down plants or seeking buyers.

Even after several East Coast plants marked for closure were spared, U.S. refining capacity has dropped to the lowest since 2005, government data showed. Gasoline inventories are at their lowest since 2008, while supplies of distillates like diesel fuel are about a fifth below the five-year average.

Most of the concern now is about the logistics of getting fuel to the right markets, low supplies of refined products after the hurricane, and the threat of more storms that could slow refineries and oil output in the Gulf of Mexico, another of the outside experts who attended the meeting said.

Last year, as civil war in Libya slashed oil exports, the Obama administration coordinated with the International Energy Agency to sell 60 million barrels of oil, a move that lowered oil prices for only a few weeks.

But the participation of European members offered an advantage: Unlike the U.S. reserve which is entirely crude oil, more than half of Europe's reserves are refined products.

This year IEA members Germany and Italy have opposed a coordinated reserve release, but Washington has secured support from the UK and France.

One recently proposed idea to engage in a much larger, more prolonged release from reserves, perhaps over 100 million barrels, was not discussed at Thursday's meeting, three sources who attended it said.

Obama to release emergency oil reserves -again?

Obama May Release Oil from Strategic Reserve: Analyst

President Obama may authorize the Department of Energy to release oil from the Strategic Petroleum Reserve in a preemptive move to head of $100 prices, according to a report from Citi Research making the rounds on trading floors Wednesday.

CNBC,

5 September, 2012

A confluence of forces including tensions in Syria and Iran, hurricanes and the possibility of additional stimulus from the Federal Reserve all point to higher oil prices [CLCV1 96.07    0.71  (+0.74%)   ], giving the U.S. plenty of reasons to release some crude from the SPR and coordinate with Saudi Arabia to draw down its stocks as well, stated the report.

“In recent weeks, the probability of a coordinated release of strategic stocks has risen significantly,” wrote Eric Lee, commodities analyst at Citi, in the note. 

“Global refining runs are poised to move into their seasonal autumn trough, meaning an SPR release over this period could be more effective. And with speculators relatively long, shaking out this length could ease pressure on oil prices.”

Oil dropped Wednesday morning following the release of the controversial report from Citi, traders said, but prices soon recovered most of that decline. Prices are up 13 percent over the last three months.

Traders have waited for any indication from the administration that an SPR release could occur. However, the chances of a pre-emptive release, as suggested by Citi, will be greatly reduced as Election Day approaches because the President would be accused of doing it purely to give a short-term boost to consumers’ pockets.

“If there was a release of the SPR at this point, I believe the market would interpret it as purely political and a desperate act,” said James Iuorio of TJM Institutional Services.

Still, if oil shoots through $100, Syria collapses, or Israel threatens a strike on Iran, the administration may have good reason to release from the emergency fuel storage this Fall.

“Our view is that the risk of an Israeli unilateral attack ahead of U.S. elections in November is substantial, yet more likely in the first half of 2013,” wrote Citi’s Lee.

Europe stockpiling oil

Europe starts stockpiling oil as Iran conflict looms

European governments are rushing to boost stockpiles of crude oil and fuel, anxious to comply with new EU rules and amid reports that Israel is preparing to launch an attack on Iran.

EurActiv.com,

26 April, 2012

Belgium and the Netherlands have issued tenders to import a total of around 250,000 tonnes of diesel and gasoline for delivery in September and October, their agencies said.

France has also bought diesel and awarded a crude oil tender this week while Belgium is increasing its crude stocks.

"This is yet another unexpected source of support for oil demand… [It] shows how the geopolitical concerns about Iran and Syria are bullish for oil even in the absence of an actual supply disruption," said Seth Kleinman, head of energy research at Citi.

Iran tensions

European governments appear to be preparing for further supply disruptions in the Middle East as tensions have mounted between Israel and Iran over Tehran's nuclear programme.

Israeli media have reported that Prime Minister Benjamin Netanyahu has decided to launch an attack on Iran’s nuclear facilities in the Fall.

Iranian President Mahmoud Ahmadinejad reacted on Friday, calling Israel a "cancerous tumour" with no place in a future Middle East, drawing an unusually strongly-worded condemnation by EU foreign policy chief Catherine Ashton.

Ashton is acting as chief negotiator for six powers – the United States, Russia, China, France, Germany and Britain – that are trying to persuade Iran to scale back its nuclear programme through economic sanctions and diplomacy. They fear Iran's nuclear programme aims at producing weapons, though Tehran says it serves peaceful purposes only.

EU oil stock directive

State inventories have come into focus as speculation mounts that the United States and other Western governments may release stocks to dampen prices and prevent high energy costs from undermining sanctions against Iran.

An EU directive passed in 2009 and designed to mitigate the impact of a supply crisis requires EU members to hold reserves equal to 90 days of average daily net imports or 61 days of average daily consumption ahead of a December 31 deadline.

One third of the stocks must be held in products, according to the EU directive.

"We are in the process of building stocks to meet our strategic obligations under the new EU rules," said Alain Demot, general manager of Belgium's Apetra, adding that more tenders would be issued in coming months.

Apetra said its tender was for 57,000 tonnes of diesel and was awarded on Thursday (16 August). It also said it had issued a crude oil tender and that a cargo of 900,000 barrels of crude oil would be delivered before the end of August into Belgian storage held in Wilhelmshaven, Germany.

Dutch agency COVA said it had issued a tender to import 200,000 tonnes of gasoline and had awarded a portion of the volume.

France's SAGESS said it bought 2 million barrels of diesel or 267,000 tonnes before the end of June to meet its EU requirements. It awarded a tender to buy 2.1 million barrels of Saharan Blend crude for September delivery earlier this week.

High gas prices again

Here we go again!

White House studying potential oil reserve release

The White House is "dusting off old plans" for a potential release of oil reserves to dampen rising gasoline prices and prevent high energy costs from undermining the success of Iran sanctions, a source with knowledge of the situation said on Thursday.

Reuters,

16 August, 2012

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

It was too early to say how big a drawdown would be from the U.S. Strategic Petroleum Reserve and, potentially, other international reserves if a decision to proceed was taken, the source said.

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

With prices high again, U.S. officials were 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 oil embargo and international sanctions were having an effective impact.

The United States 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 (IEA) 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.

Domestically, 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 November 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

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

In May the G8 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 were producing more and the supply disruption related to Libya was 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.

Although the loss of over half Iran'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 on the day, 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.

"As long as the Brent price stays up, and there are still problems with the North Sea (oil production) and there is still geopolitical risk, I think this creates a buying opportunity for every speculator in the world," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com LLC.

"The market will drop initially, people will then buy that dip, as they did last year."

US wants to tap emergency oil reserves

-- Obama is a desperate man trying to hold onto his presidency, but this desperation is either illustrating his extreme stupidity or intellectual dishonesty. Foes who argue that the SPR should be reserved for use only in the event of a supply crisis are exactly right, and that is why moves like this are unprecedented. President Obama has chosen to run in the same race as former President George W. Bush in an effort to win the dumbest president of all time award. -- JB, Managing Editor

U.S. to seek G8 support for oil reserve release: Kyodo

U.S. President Barack Obama will seek support to tap emergency oil reserves from other Group of Eight leaders at a summit this weekend before the European Union's July embargo of Iranian crude, Kyodo news agency reported on Wednesday

Daily News,

16 May, 2012

The report suggests that a slide in oil prices to their lowest in months has not halted U.S. efforts to use strategic oil stockpiles to offset diminishing exports from Iran, which is facing tough new sanctions on its oil industry.

The EU ban on imports comes into full force in July.

Kyodo said Japanese Prime Minister Yoshihiko Noda was expected to support the call, which comes after several months of discussion with allies including France and Britain. It is the first indication that Japan may support the move, although it is far from clear that skeptical nations like Germany have been won over.

The White House declined comment on the report.

"General energy and climate change issues will be discussed at the G8, as part of a larger focus on the economic issues. As we have said repeatedly, all options remain on the table, but we have no additional announcement to make," an administration official said.

Separately, a French diplomatic source suggested that newly-elected Socialist President Francois Hollande was also prepared to go along with efforts to tap government-held stockpiles, a change of stance from prior to the vote.

"The U.S. has an approach that we don't condemn," a diplomatic source under the new presidency said, without specifying what the U.S. approach was. "I think the discussions will be easy and I don't expect any conflict on this question," he added ahead of a Friday meeting between Obama and Hollande.

In pursuing what would be an unprecedented second release of the Strategic Petroleum Reserve during his term, Obama may be embarking on a risky political strategy. While he may help head off a damaging spike in gasoline prices this summer, he also risks attack from foes who argue that the SPR should be reserved for use only in the event of a supply crisis.

"As an economic matter, the timing would require explanation. As a foreign policy tool this would be a smart bomb detonated in the heart of the Iranian economy with no physical casualties," said David Goldwyn, who headed international energy affairs at the State Department until early 2011. "You have to love the move from a strategic perspective."

U.S. crude oil prices, which were already down sharply when the news hit, edged still lower after the report. Oil closed down 1.24 percent at $92.81 a barrel.

Oil traders have been on alert for a possible SPR release since March, when news of discussion first surfaced amid signs that Iran's oil exports were already starting to suffer. But prices have fallen 16 percent since then, dropping to their lowest in months on concerns about global economic growth.

SATURDAY DISCUSSION

Obama will raise the request during a discussion of energy issues on Saturday at the meeting in Camp David, stressing the need to stabilize oil prices and demonstrate solidarity in putting more pressure on Iran, Kyodo reported, citing sources close to Japan-U.S. ties that it didn't name.

Kyodo said that it was uncertain whether other G8 countries would support Obama's call. Some, such as Germany, have tended to resist using emergency stockpiles. The International Energy Agency's chief Maria van der Hoeven said two weeks ago she saw no need for tapping stocks as the market was well supplied.

A representative for the IEA, which coordinates energy policy among the world's industrialized energy consumers, had no comment on Wednesday.

Energy Commissioner Guenther Oettinger told Reuters earlier on Wednesday that the European Commission is in close contact with the United States and the IEA, but sees no immediate need for any release of oil stocks.

Kyodo did not provide any details as to when such a release could occur, but many analysts say Iran's exports could decline sharply from July as tough new EU sanctions on oil shipments come into full effect.

Last year, the IEA coordinated a global release of 60 million barrels in order to offset the war in Libya, which had cut off the OPEC member's 1.2 million barrel per day of exports.

High gasoline prices remain a vulnerability for Obama ahead of the November 6 election, even though they have slipped for six straight weeks.

Edward Markey, a Democratic congressman who has urged the president to use the reserves, said Obama's discussion in recent months had already helped take some speculative money out of oil prices.

"Going forward, the uncertainties arising from Iran's nuclear ambitions, and the prospect of economic sanctions against Tehran, justifies the president's coalition-building to deploy oil reserves if needed to protect American drivers and the world economy," he said in a statement.

Republicans say Obama could do much more to open up oil drilling on public lands and have blasted his decision to delay permitting of the Keystone XL pipeline to ship Canadian crude south to the United States. Obama, on the other hand, has noted that U.S. oil production has risen steadily in the past few years.