Oil stockpiles could stop spiralling fuel prices: analyst

Oil stockpiles could stop spiralling fuel prices, analyst says

By Pattrick Smellie

March 7 (BusinessDesk) – Global stockpiles of crude oil should be tapped immediately to stop the upward spiral in fuel prices, but the oil industry doesn’t want it to happen, says an international energy industry analyst visiting Wellington this week.

The developing civil war in Libya posed a major threat, as Libyan crude oil is crucial in the production of low-emissions diesel, mandated for use in much of Europe and North America, Phil Verleger told a media briefing hosted by local transport fuel distributor Greenstone Energy Ltd.

“We face the risk of repeating the 2008 cycle where oil peaked at US$150 per barrel because we will be short a significant volume of ultra-low sulphur diesel fuel in Europe and the US.”

That had the potential to add as much as NZ40 cents a litre to local petrol prices, “assuming no weakening of the New Zealand dollar.”The kiwi has fallen around 3 cents against the US currency since the Feb. 22 Christchurch earthquake, in anticipation of an official interest rate cut by the Reserve Bank of New Zealand this Thursday.

The 2008 price spike had helped to precipitate the global financial crisis and a repeat posed a serious threat of a “double-dip” US recession, said Verleger, whom Greenstone billed as “one of the world’s leading authorities on the operation of global oil markets.”

Verleger says that about half the 1.6 billion barrels of strategic reserves oil stockpiled in the US, Europe, Japan and elsewhere is the light, sweet variety supplied mainly from Libyan oilfields and that even if Libyan unrest continued for a year, there would still be stockpiles of around 500,000 barrels of those supplies left.

While the oil industry would oppose the use of strategic stockpiles, the main reason for that was lower profits.

“Using those stocks will reduce oil company and refinery profits,” said Verleger, who helped establish the strategic reserves policy in the 1970’s. “They don’t want that.”

The stockpiles had been “co-opted by the International Energy Agency and the industry,” he said.

The world faced three choices, of which higher oil prices was the most damaging. The other two were either to tax diesel that didn’t meet national standards and take a short term environmental hit, or to release stockpiles.

There were signs US Barack President Barack Obama, who has a rocky relationship with the oil industry, was preparing to release stockpiles.

While Libya’s 1.5 million barrels a day production was a small proportion of total global production of around 88 million barrels a day, its crude was the key input for low sulphur diesel, the price of which would rise dramatically if there was a prolonged Libyan internal crisis.

While Nigeria also produced similar grade crude oil, it was unlikely to be able to ramp up production sufficiently.

(BusinessDesk)

© Scoop Media