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EXCLUSIVE-UPDATE 4-U.S., UK set to agree emergency oil stocks release

Thu Mar 15, 2012 9:15pm GMT

* UK expects request from U.S. to cooperate on release
* UK to respond positively, detail seen by summer
* IEA resists coordinated stock release, sees no shortage
* Iran sanctions behind oil price increase to $ 124

(Recasts first paragraph, adds comments from Prime Minister
Cameron in paragraphs 4 and 5)
By Richard Mably

LONDON, March 15 (Reuters) – Britain is poised to
cooperate with the United States on a release of strategic oil
stocks that is expected within months, two British sources said,
in a bid to prevent fuel prices choking economic growth in a
U.S. election year.

A formal request from the United States to the UK to join
forces in a release of oil from government-controlled reserves
is expected “shortly” following a meeting on Wednesday in
Washington between President Barack Obama and Prime Minister
David Cameron, who discussed the issue, one source said.

Britain would respond positively, the two sources said, and
Cameron said the issue of reserve levels was worth considering.

“We didn’t make any decision, this has to be discussed
broadly. We’ve got to look at this issue carefully, it’s
something worth looking at. Short-term should we look at
reserves? Yes, we should,” Cameron said during a meeting with
students in New York.

“We’d both like to see global oil prices at a lower level
than they are.”

Details of the timing, volume and duration of a new
emergency drawdown have yet to be settled but a detailed
agreement is expected by the summer, one of the sources said.

Other countries may also be approached by Washington to
contribute, a further source said, Japan among them.

White House spokesman Jay Carney said Obama and Cameron
discussed rising oil prices, but he declined to comment on
whether the leaders discussed a release of reserves.

He said no deal had been reached on a release or timetable for such a move.
“As has been the case every time I’m asked about that issue
(the Strategic Petroleum Reserve), I’m not going to discuss
specifics about it,” Carney said.

“I can tell you that among the many topics of discussion
that the British prime minister and the president had were
energy issues and the situation globally with the rise in the
price of oil.”

Rising world oil prices have pushed the cost of gasoline in
the U.S. up sharply, threatening to stall economic recovery
ahead of Obama’s bid for re-election in November.

Brent crude has gained more than 15 percent since January to
a peak of over $ 128 a barrel, in a repeat of last year’s spike
in fuel costs when the loss of Libyan oil supplies during civil
war triggered a coordinated International Energy Agency (IEA)
stock drawdown.

Brent for May tumbled $ 1.98 to settle at $ 122.60 a barrel on
Thursday.

Previous emergency oil releases have been coordinated by the
Paris-based IEA to meet its mandate to cover substantial supply
disruptions on the world oil market.

The IEA has declined to coordinate a broader release among
its 28 industrialised members, but says that countries may
legitimately decide to release oil unilaterally.

“The Obama administration can only take so much political
pain from rising gasoline prices, which pose a serious threat to
the economy and the president’s re-election,” said Bob McNally,
a former White House energy adviser and head of U.S. energy
consultancy Rapidan.

“SPR (Strategic Petroleum Reserve) use is more a matter of
when than if. The administration strongly desires international
support and coordination from other strategic stock holders, but
is encountering stiff resistance from some IEA members who think
strategic stocks should only be used for severe supply
disruptions,” McNally said.

Top U.S. officials including Energy Secretary Steven Chu and
Treasury Secretary Timothy Geithner have said publicly in recent
weeks that a U.S. oil release is among the options the
government is considering.

While there is no significant disruption of world oil
supplies at the moment, sanctions on Iran are expected to cut
its output when a European Union embargo takes effect from July.
Minor stoppages from South Sudan, Yemen and Syria also have
contributed to the rise in oil prices.

“At the moment there is no need to use it,” IEA executive
director Maria van der Hoeven said of reserves at an industry
conference in Kuwait on Wednesday.

“There is more supply coming to the market from OPEC
countries. There is no price trigger for the stocks release, the
trigger is a disruption in physical supplies.”

“There is no real supply disruption, this is just price
management”, said Olivier Jakob from Vienna-based consultancy
Petromatrix.

OPEC’s biggest producer Saudi Arabia, the only oil producer
with any spare capacity, has said it is prepared to fill a
supply gap but will only do so to meet additional demand, rather
than as a preventative measure.

While the U.S. release would be of crude oil from the
national SPR, the UK contribution is likely to come from a
reduction of the minimum reserves of crude and refined products
that UK commercial oil companies are required to hold.

The United States has sold crude oil directly from the
700-million barrel SPR only a handful of times, almost always in
conjunction with the IEA.

In addition, the U.S. Department of Energy has arranged
unilateral short-term loans from the reserve about a dozen times
since it was filled in the 1980s, typically in much smaller
amounts.

(Additional reporting by Matt Falloon and Joshua Schneyer in
New York, Humeyra Pamuk in Kuwait, Zaida Espana in London;
Editing by Anthony Barker and Jim Marshall)

http://af.reuters.com/article/energy…8EFB7320120315