IEA urges oil importers to build emergency stocks

Reuters, 04.29.03, 11:54 AM ET By Marguerita Choy

PARIS, April 29 (Reuters) - The International Energy Agency, the West's energy watchdog, said on Tuesday industrialised countries should build emergency oil stocks further to protect against supply disruptions, even though these reserves have not been used in over a decade.

The agency, set up in 1974 to protect oil importers after the 1973 Arab embargo, requires its 26 members to hold government-controlled stocks to cover at least 90 days of demand.

"Growing oil demand in IEA Member and non-member countries, particularly in transport, requires greater effort by importing countries to build and hold appropriate emergency stocks," the agency said in a communique after two days of talks.

The call to top up these reserves, which already amount to 1.3 billion barrels in the OECD, comes after three major oil supply disruptions over the past six months -- none of which has required a stock release.

An opposition strike in Venezuela shut off some three million barrels per day (bpd) of oil supply from the world's 78 million bpd market in December.

Just as Venezuelan output recovered, Nigeria saw its exports hit by almost a million bpd in March due to ethnic clashes. Then at the end of March, Iraq's 2.5 million bpd production was halted by the U.S. led attack on Baghdad.

Relying on big volumes of spare production capacity in other OPEC nations, the IEA decided against releasing oil from its emergency stocks.

Thanks partly to a growing cooperation between OPEC and the IEA, the West's emergency stocks have not been tapped since 1991, after Iraq's invasion of Kuwait.

Nevertheless, British Energy Minister Brian Wilson said it was perverse to question the deterrent value of the reserves.

"The stocks are part of a framework that gives stability and things have worked reasonably well. We should strengthen the framework rather than dismantle it and hope for the best," Wilson told a news conference after a two-day IEA meeting in Paris.

IEA ministers strongly affirmed their readiness to combat a disruption of oil supply, including use of emergency stocks and demand restraint.

Claude Mandil, IEA executive director, added that while the agency worked with producer cartel OPEC to stabilise the market ahead of the Iraq war when oil prices soared to a 12-year high near $40 per barrel, it had been fully prepared to release strategic reserves.

"We were not willing to intervene in the market by releasing stocks if it was not necessary but we totally prepared to do so if it was," Mandil said.

"I would make the comparison with a safety net. If you're using the flying trapeze, you expect not to use but are happy to have it in case you have to use it," he said.