The International Energy Agency has issued a statement that it apparently hopes will quell some of the fears that have driven crude prices to levels not seen for a while. The IEA notes that less than 1% of global daily consumption, some 500,000 to 750,000 barrels, have been lost to the market. The statement never once uses the word ‘Libya’, preferring instead to say that the organization continues “to closely monitor and analyse developments in the current situation, that is evolving.”
The IEA also says it is in “close contact with OPEC” and other producers, and that the agency has noted producers’ willingness to put excess capacity into production if necessary. Global spare capacity is currently right around five million barrels/day, with nearly 3.8 million of those barrels under the sands of Saudi Arabia.
The IEA also points out that its member countries currently have 1.6 billion barrels of oil in emergency reserves. That number includes the US Strategic Petroleum Reserve, which currently stands at 727 million barrels.
IEA’s soothing words aside, there is little reason to think that crude prices will fall much until the turmoil subsides in Libya and the rest of North Africa and the Middle East. The recent gesture by Saudi King Abdullah to pump $37 billion into programs for lower and middle-income Saudi citizens is really nothing more than just that, a gesture.
What happens in Saudi Arabia is the big thing to watch for. If Saudi Arabia starts to suffer from internal turmoil, nothing that anyone can do or say will put a lid on the price of crude.
Another thing that could happen is the President Obama could authorize tapping into the US strategic reserve. That really wouldn’t mean anything in terms of physical supply, but it could hold prices down a bit and give consumers some confidence that the government is doing something about rising gasoline prices.