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.
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
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.
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.
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
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.
The comment echoed those of Germany's Economy Ministry this
week, which said the government has no plans to release any of
its strategic oil reserves. "By law, the oil reserves can only be
released in the event of a disruption of the oil supplies, and
there is nothing of the kind at the moment," a ministry
Analysts have noted that the actual supply losses seen this
year from Yemen, Syria, and Sudan that have heightened market
concerns are slight compared with the disruptions from Libya last
year that prompted the release of the IEA's reserves.
While Europe would suffer more directly from the cutoff of
Iranian crude than would the United States, which does not buy
oil from Tehran, the knock-on effect of a disruption would drive
prices higher around the globe.
The U.S. SPR has the capacity to hold 727 million barrels,
enough to cover U.S. needs for nearly 40 days. The government has
tapped the reserve in the past during times of supply
disruptions, most recently after Libya's civil war.
An SPR release during the 1991 Gulf War coincided with a 12
percent fall in U.S. gasoline prices. One in 2005 was followed by
a price drop of 19 percent, while last year's release coincided
with a U.S. pump-price drop of around 6 percent, according to
Energy Department figures.
Saudi Arabian Cover
Saudi Arabia has repeated publicly it would prime its pumps to
meet any shortfall in exports from Iran, a fellow member of the
Organization of the Petroleum Exporting Countries.
Industry sources told Reuters on Friday that Saudi Arabia had
boosted exports to just over 9 million barrels per day last week,
compared with an average of about 7.5 million bpd in January,
although it was not clear if the export numbers were the start of
a longer Saudi supply addition or a temporary uptick.
"Those export numbers are very reliable, but they're only for
a week, so they don't tell you whether or not they're going to
sustain these levels," said one industry source.
If Riyadh were to maintain exports at 9 million bpd, it would
imply record volumes from OPEC's leading producer of 11 million
bpd, up more than 1 million bpd from last month. Saudi Arabia
currently is using about 2 million bpd domestically.
Other sources at oil companies who buy Saudi crude said that
Riyadh was offering extra oil both in addition to existing
long-term contracts and on a one-off "spot" basis.
Saudi Arabia this year identified $100 a barrel as a fair
price, and Riyadh is sensitive to the concerns among consumer
countries about high fuel prices slowing economic recovery.
As well as extra Saudi crude, Iran's top European customers
are seeking more oil from Iraq, Libya, and Russia,
but Saudi Arabia is the only country that holds significant
volumes of spare capacity. European Union countries import about
700,000 bpd of Iranian oil.
Concerns over Iran's nuclear program reached a fever pitch
after the U.N.'s International Atomic Energy Agency said on
Friday Iran had sharply stepped up its uranium-enrichment
The IAEA also reported its failed mission to Tehran this week
that aimed to get Iran to respond to allegations of research
relevant for the development of nuclear weapons -- a serious
setback to the possible resumption of diplomatic talks.
"The agency continues to have serious concerns regarding
possible military dimensions to Iran's nuclear program," the
Vienna-based U.N. body said in a quarterly report about Iran
issued to its member states.
Israel, which has threatened Iran with pre-emptive strikes on
its nuclear sites, had no immediate comment on the report.
which has backed tough new sanctions on Iran, said it was further
cause for concern.
Tehran says its nuclear program is exclusively for civilian
purposes and denies it aims to make atomic weapons.
(Reporting by Rachelle Younlai, Jeff Mason, Timothy Gardner in
Washington; Daniel Flynn, Patrick Rucker, Alonso Soto in Mexico
City; Alex Lawler, Richard Mably, Peg Mackey in London; Fredrik
Dahl in Vienna; Matthew Robinson and Joshua Schneyer in New York;
Editing by Alden Bentley)