x Abu Dhabi, UAESunday 21 January 2018

Heat is on, and the mood has changed

The plea for more oil supplies comes as Opec prepares for what could be its most contentious meeting in years.

The plea for more oil supplies comes as Opec prepares for what could be its most contentious meeting in several years.

The International Energy Agency's (IEA) rare public statement said it was acting in a "constructive spirit" to work with oil producers and consumers other than its members. But the tone and content of the message signalled a shift from the co-operative atmosphere that prevailed just three months ago.

That was when the International Energy Forum called a ministerial summit for oil producers and consumers to confer on pressing issues such as Libyan unrest.

In late February, Opec and IEA members stood shoulder to shoulder in Riyadh as they pledged to keep global markets adequately supplied with oil.

Saudi Arabia promised to increase crude output to compensate for cuts in Libyan crude shipments. The IEA said it was prepared to release oil from its emergency stocks, which could cover all the import needs of its 28 members for almost six months.

Now the IEA is brandishing those same oil stocks with thinly veiled menace as it promises to use "all tools" at the disposal of its members to correct "widening global imbalances".

But Saudi Arabia, the de facto Opec leader, has already pulled out the stops to compensate for recent supply curtailments from countries such as Libya and Yemen. The kingdom raised oil output and urged other Gulf producers with spare production capacity to do the same.

Saudi Aramco even created two high-quality crude blends custom-designed to match the feedstock specifications of European refiners deprived of Libyan crude. It found few takers. Last week, the IEA said that was because the oil blend was "too expensive".

If refiners are not buying, then current prices are unsustainable and should soon retreat. Forcing the issue by threatening to unleash emergency stocks risks a dangerous destabilisation with wild price swings that will benefit only speculators.