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Saudi Arabia has raised crude exports and the United States is considering releasing oil from its Strategic Petroleum Reserve as crude-oil prices hit nine-month highs on Friday and concerns deepened over Iran's nuclear program.
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The Brent crude price surged to more than $125 a barrel after the United Nations' nuclear watchdog issued a report flagging the potential military nature of Iran's nuclear program, following an aborted U.N. inspection mission to Iran this week.
The report heightened fears of a supply disruption and could stoke worries in Israel, which has threatened Iran with pre-emptive strikes on nuclear sites. That would send shock waves across the region and almost certainly drive oil prices even higher.
Top oil exporter Saudi Arabia increased exports in the past week and offered additional crude to its biggest customers to tame runaway prices, industry sources told Reuters on Friday.
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U.S. sanctions on Iran's oil buyers, as well as a European Union oil embargo to begin July 1, have already forced its customers in Europe and Asia to curb purchases from the world's fifth-largest crude exporter.
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The Saudi move comes as the Obama administration studies tapping crude from the SPR among possible measures to offset any Iranian supply disruptions, according to sources familiar with the discussions.
U.S. Treasury Secretary Timothy Geithner told CNBC on Friday there may be a case for using the reserve. "Obviously, Iran can do a lot of damage to the global economy," Geithner said. "We are working very carefully to try to minimize that risk."
The fear of tightening supplies, including a threat from Tehran to close the Strait of Hormuz -- the main Persian Gulf oil-shipping lane -- have lifted oil prices 11 percent this year, putting political pressure on President Barack Obama, who is running for re-election in November.
Prices at the U.S. gasoline pump are the highest on record for February. They hit $3.65 a gallon on Friday, an increase of 13 percent over last year, according to AAA. That has raised concern that any oil-market disturbance could hoist them well over $4.00 during the U.S. summer driving season -- when demand in the world's largest oil consumer tends to be highest.
The International Monetary Fund has also warned higher oil prices are a rising threat to the global economy.
"It's clear that Washington is holding its regular fire drill on $4.00 gasoline. This means going through the laundry list of policies they could use, including an SPR release," said Bob McNally, a former White House energy adviser who now runs energy consultant Rapidan Group. "Iran is the added twist. The odds Washington places on an Israeli attack on Iran are higher than the odds given by the oil markets."
Real Vs. Perceived Threats
The appetite for a coordinated opening of reserves by the United States and other nations may not be as high as last June, when Western nations that are members of the International Energy Agency agreed to release a total of 60 million barrels of oil in response to supply disruptions from Libya.
Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said releasing reserves now would not help dampen oil prices driven up by concerns over geopolitical tensions rather than an actual interruption of crude flows. "My concern is that the hike in the price today does not derive from a fundamental imbalance of supply and demand," he said Friday at a Group of 20 meeting in Mexico City.
