It seems the market is faltering a bit as uncertainty reigns supreme. Yet the Supreme Leaders of Iran seemed to want to fan the flames of the bazaar bringing back an oil market that was overdone. The International Energy Agency and comments from Saudi Arabia weighed on prices. The IEA says that they stand ready to release supply if market conditions warrant, the market sold off on the comments but let's face it, at this time market conditions do not warrant it.
Reuters News reported that oil consuming nations may seek reassurance from Saudi Arabia that it will not cut oil production and neutralize the impact on oil prices if consumer countries release emergency reserves, diplomats and industry sources said. The issue may be raised by a U.S. delegation, led by U.S. Secretary of State Hillary Clinton, which is in Riyadh this weekend to discuss Syria with Gulf States. Clinton will see Saudi King Abdullah and Foreign Minister Saud al-Faisal. If they're going to release reserves they need an assurance from the Saudis that they won't offset it by cutting supply, said one industry source familiar with thinking in Washington. There's no doubt the measure needs the cooperation of Saudi Arabia, said a diplomat. The United States, with Britain and France, is considering a release from emergency stockpiles to cut fuel costs. Other countries including South Korea and Japan may join the plan. Riyadh would not want deliberately to undermine an effort to bring down oil prices. But it might reduce supplies in response to a release of oil drawn from reserves if that were to displace Saudi supplies, particularly in the United States where the national Strategic Petroleum Reserve would provide the bulk of any drawdown.
Oil prices have risen sharply since the start of the year, at one point breaking $128 a barrel, largely because of sanctions against oil producer Iran, aimed at slowing Tehran's nuclear program. Diplomats have said the sanctions aim to meet Israeli demands for action against Tehran by hitting Iran's oil earnings and to prevent the alternative - a military strike by Israel. The view is that higher oil prices are a price worth paying to prevent or push back a war against Iran and higher oil prices can be alleviated by using emergency stocks, said the industry source.
Saudi Oil Minister Ali al-Naimi has said publicly that Riyadh wants to bring down oil prices. But he has also said that Saudi can do no more than meet demand for its crude, which it is already doing, and that the previous drawdown of oil reserves last June during the Libyan civil war did not work. That's up to them, he said to reporters in Doha last week of a possible consumer country release. What I can tell you is that they have done it before and it didn't do anything. You saw what happened in the last release? Nothing.
The concern among Western diplomats is that oil from strategic stocks could displace Saudi barrels, particularly to the United States where Saudi imports have risen recently, leaving net supplies globally little changed. Last year after the International Energy Agency tapped reserves at the end of June to fill the gap left by Libya's civil war, Saudi output at first remained high, and then fell. Reuters estimates put Saudi production at 9.85-9.9 million barrels per day from July to September before falling to just over 9.4 million bpd in October and November. It has since risen steadily back to about 9.9 million bpd now.
When we talk about war premium in oil we are usually talking about Iran and Syria these days. Perhaps we should be talking about the Sudan. Dow Jones Reports that, fighting between the armies of South Sudan and Sudan intensified in the oil regions along a poorly-defined border, in the latest escalation of conflict between the two nations, officials told Dow Jones Newswires Tuesday. South Sudan army spokesman Philip Aguer said South Sudanese troops were pursuing Sudanese troops inside Sudan after capturing two army bases in the restive region of South Kordofan. They [Sudan] attacked our positions first and we repulsed them. We are still pursuing them as a self-defense measure. Sudan's state media reported late Monday that President Omar al-Bashir had suspended a summit meeting with his South Sudanese counterpart, accusing South Sudan's forces of attacking its oil fields. Fighting erupted Monday after Sudanese planes bombed South Sudan's oil regions of Jua and Pan Akuach. Relations deteriorated after South Sudan halted shipments of 350,000 barrels a day through Sudanese pipelines and ports in January, accusing its northern neighbor of stealing $815 million of its transit oil.
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