IEA plan to boost Australian oil reserves
The International Energy Agency says it is working on a long-term plan with Australia to fix its low oil stocks.
The International Energy Agency says it is working on a long-term plan with Australia to fix its low oil stocks as a debilitating strike knocking out half of Saudi Arabia’s crude production underlines the nation’s exposure to global energy shocks.
The attack on the world’s biggest crude exporter may derail output from the kingdom for months and risks sparking retaliatory raids in the region while also highlighting the vulnerability of Saudi’s energy infrastructure.
Australia currently has the lowest reserves of any member nation of the IEA, putting the spotlight on the nation’s exposure to major oil outages.
“IEA member countries are required to ensure oil stock levels equivalent to no less than 90 days of net imports and to be ready to collectively respond to severe supply disruptions affecting the global oil market,” the Paris-based body representing oil consumers said in a statement to The Australian.
Australia was “non-compliant with its IEA stockholding requirement, and current oil stock levels are equivalent to around 58 days of net imports. In response to this situation, the Australian government has worked closely with the IEA to establish a plan for returning to compliance by 2026 that is appropriate to Australia’s specific circumstances”.
Australia’s 58 days’ worth of fuel imports, including crude oil and stocks already held by retailers, falls substantially short of the IEA’s 90 day mandated standard, but the government said there was “no immediate threat” to fuel supplies in the country.
Energy Minister Angus Taylor said when supplies already on water were included, Australia’s stocks were “close” to 90 days. But under the preferred measure of domestic fuel security, the nation had an average of just 23 “consumption days” worth of petroleum in storage during 2018-19, 25 days’ worth of aviation fuel, and 20 days’ worth of diesel.
Australia is negotiating with the US to gain access to its vast strategic reserve, and the IEA said member countries had substantial flexibility in how they met their obligations.
“That can include stocks held exclusively for emergencies and stocks held for commercial purposes — both in the form of crude oil and as refined products — as well as holding stocks in other countries under bilateral agreements,” the IEA said. “Each member country is thus able to determine how to fully meet their IEA stockholding commitment in the manner most appropriate to their domestic circumstances. Australia is currently doing this within the context of its Liquid Fuel Security Review.”
The international price benchmark, Brent oil, held largely steady on Tuesday at $US68.60 ($100) after soaring on Monday, with Saudi Arabia’s state-run oil giant Aramco yet to update the market on the expected length of the major outage.
Australian energy stocks again gained ground, led by Woodside Petroleum which rose 2 per cent on Tuesday to $33.36 after a 4.3 per cent bounce to start the week. The West Australian producer stands to gain from a potential LNG price jump given the fuel’s oil price linkage, according to Macquarie, with Oil Search and Santos likely to also benefit.
Brokerage Goldman Sachs estimates the price rises could add $100m to Qantas’ fuel bill if oil prices remain elevated. Even so, the brokerage noted Qantas was fully hedged for the remainder of financial 2020. Shares in the airline closed up 1 per cent at $6.17. The strike on the world’s most vital piece of energy infrastructure showed the market had been mispricing oil by at least $10 a barrel, Citi analysts said.
“No matter whether it takes Saudi Arabia five days or a lot longer to get oil back into production, there is but one rational takeaway from this weekend’s drone attacks on the kingdom’s infrastructure — that infrastructure is highly vulnerable to attack, and the market has been persistently mispricing oil, which Citi reckons should have been a good $10 a barrel higher than it has been for month,” they said.
Tapping stockpiles may relieve any physical shortage but traders will remain tense over the broader geopolitical risks.
“Complacency might well take hold through a stock release, but drawing from the country’s crude stockpile without trimming refinery runs would bring inventories down quickly to a stressful level, particularly in light of the risks coming from other potential disruptions. The double jolt to complacency is the attacks themselves and the US and Saudi conclusion that they were directed by Iran, with the Islamic Revolutionary Guard Corps having no interest in peace talks,” they said