Any other business | 2 July 2011

Why release emergency oil stocks? Because Opec never does the right thing

Observers of oil politics have been wondering why the Paris-based International Energy Agency, which represents 28 member states including Britain, has suddenly decided to start releasing oil from its emergency reserves. What do they know that we don’t? This is a rare move for the IEA — the last time was after Hurricane Katrina. The amount of the release, 60 million barrels, is enough to fuel the world for about 19 hours, which sounds insignificant, but is also equivalent to 42 days of pre-war production from Libya, which is more relevant. Current oil stocks are apparently ample on both sides of the Atlantic, though prices have stayed stubbornly high — over $100 a barrel for Brent Crude despite the IEA action and what one oil analyst calls a ‘soft-patch scenario for the economy’.

That price behaviour is partly due to the propensity of financial speculators to create short-term supply scares, and partly to lack of faith in Saudi Arabia and other Opec members to raise production to compensate for an extended Libyan conflict and an anticipated rise in demand in the third quarter. The impact of speculators — so I’m told by Leah McGrath Goodman, author of The Asylum, a well-spiced account of the lifestyle of oil traders on New York’s Mercantile Exchange — is tough to monitor because there is such paucity of data as to who owns how much oil at any given moment. But the core problem in the oil world, as so often in the past, is that Opec sheikhs are incapable of reaching co-ordinated, intelligent decisions which play to their own long-term interests by fostering economic stability in the west. The IEA is signalling them to try harder.

Return of the Rock

Neither Sir Richard Branson’s Virgin group nor the US private equity firm Blackstone seems to me the right buyer for Northern Rock, which the Treasury is now preparing to sell off.