International Energy Agency Executive Director Nobuo Tanaka said Thursday the IEA was waiting to see how fast Saudi Arabia and other OPEC producers would deliver more oil to prevent what he called a "hard landing" for the global economy and that he stood ready to order a release from stocks at any time.
"We are concerned with the speed that OPEC can provide to the global market," Tanaka told a press conference in St Petersburg after publication of the IEA's Medium Term Oil and Gas Markets outlook. "We have heard a lot that they will provide by increasing production."
"The Saudi Arabian oil minister said they will provide with their spare capacity...we believe they will but how fast and how much?" he added. "We are assessing the market situation and we know that if the current level of price continues, it is to the detriment of the global economic recovery," Tanaka said, adding that a "hard landing" could be avoided by putting more into oil markets.
He said that the IEA, the West's energy watchdog, would wait to see how Saudi Arabia would respond to requests for more oil, noting that refineries in Europe were coming back from seasonal maintenance.
"We will see how they will deliver," Tanaka said, referring to the Saudis.
Tanaka said that those OPEC members that had indicated willingness to meet additional market supply had signaled that they would increase output by 1.8 to 2 million b/d.
"This gap should be supplied very quickly," he said.
Asked whether he would be prepared to order a release of strategic stocks, he replied: "We are ready to act at any time if necessary."
OPEC's last meeting in Vienna on June 8 ended in disarray with Saudi Arabia leading a group of Gulf Arab allies pushing for an increase of 1.5 million b/d over an April baseline of 28.8 million b/d in order to meet rising energy demand in the third and fourth quarters. But Iran, which holds the current OPEC presidency, resisted the Saudi-led effort and the meeting ended without agreement on an output hike though Saudi Arabia and the other OPEC members of the Gulf Cooperation Council -- the UAE, Kuwait and Qatar -- said they would not allow markets to go short. David Fyfe, the IEA's head of Oil Industry and Markets, told the same news conference that the crisis in Libya had led to the market tightening to the tune of 1 million b/d.
"Fears of contagion plus runaway non-OECD demand growth have sustained prices at and around $100/barrel," he said.
This posed a risk to the global economic recovery, he said, noting that these recent developments had led the IEA to revise up its price assumption. "This year, our price assumption, which is taken from the Brent futures strip, is around $20/b higher than when we were doing this exercise back in December 2010," he said. "We are working with a price assumption of just north of $100/b on an underlying basis."
However, there was no indication of excessive speculative activity on oil markets, Fyfe said.
He noted that while there were "concerns about new players in the commodities market" there was "no excess speculation in the market at this time...on a trend basis it has declined."
"You still have to look at today's and expected future fundamentals to get an idea of future price direction," Fyfe said, adding that spare capacity had been "squeezed," partly as a result of the Libyan crisis. "We basically see a tighter market."
At the same time, a higher price of "$90, $100 and $110 is prompting a response from the demand side," he said. "If GDP growth eases, we may see slower demand growth and see some breathing space from the relentless upward pressures we have seen in recent months."
