Since announcing on June 23 a 60-million-barrel release of oil from emergency stocks, the IEA has attracted widespread criticism from pundits attacking the timing and motivation of the move, and even more questions over whether the amount of oil to be released will really match up to the headline figure.
So how big is a 60-million-barrel stock release? That's not a straightforward question to answer, as it depends to a large degree on your definition of "release."
Of the total figure announced by the IEA, nearly 40 million barrels is held directly by its member country governments in state-controlled storage facilities. Most of that oil, including 30 million barrels of crude in the US Strategic Petroleum Reserve, has been publicly tendered and can reasonably be said to have been "put on the market."
The tricky part comes with the remaining volume of more than 21 million barrels, all of which is in theory being released from stocks in Europe and Asia.
Several of the countries involved in these regions do not have any storage facilities controlled directly by the state, and rely instead on laws requiring oil companies to hold compulsory stock obligations separate from their commercial inventories.
What has happened in many cases is that these countries have lowered the minimum level of these compulsory stock obligations, which has the effect of taking oil held as emergency, or so-called strategic inventory at a particular refinery, for example, and re-labelling it as commercial inventory for the oil company to do with as it pleases.
This lends a degree of opacity to the stock release mechanism, which seems to have confused many of those trying to hold the IEA to account. If these 21 million barrels are not being sold on the open market, then are they really being released?
There are plenty who would say "no" to that question. Earlier today, on a conference call with the IEA to discuss the stock release, one journalist even asked the agency officials if they could "confirm" that the actual stock release would only amount to 58% of the promised 60 million barrels.
While the complicated nature of this stock release may not make life easy for those of us tracking what the IEA is doing, it's too simplistic to dismiss the changing of the status of oil stocks from strategic to commercial as "not a proper stock release," which is more or less what many of the critics are saying.
After all, the IEA says its action was prompted by a desire to prevent the oil market from tightening further. As all market watchers know, one of the key measures to gauge market tightness is the level of commercial oil stocks. So if this stock release contributes to an increase in commercial stocks (or prevents bigger decrease, which amounts to the same thing) then surely it will have contributed to this goal. And, in any case, aren't commercial stocks effectively part of 'the oil market' even if they have not been directly offered for sale to anybody?
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