Running on empty

As oil prices paused within sight of USD 120, the European Commission said it had opened a public consultation on its plans to revise the emergency oil stock regime.
“We launched yesterday (April 22) a consultation process in order to review our directive. We want to reinforce that, but we are not urging them to do nothing yet,” Ferran Tarradellas Espuny, spokesman for EU Energy Commissioner Andris Piebalgs told New Europe, responding to the question whether the Commission was urging Member States to build up their reserves.
Current EU rules dictate that member states should maintain a strategic oil reserve equivalent to 90 days’ use, a rule which was introduced in 1968 and reinforced in 1973. “1968, it’s one of the oldest energy directives in issuance,” the spokesman said. It was effective in 1973 when there was shock but now there are fixed special relations so in part there is less red tape,” he said.
The Commission wants to update some of the current rules in the paper, making it more sufficient. Oil prices have more than doubled in the past four years affected by continued instability in key areas including Nigeria and Iraq, and demand in Europe has changed. Interested parties can submit their views by June, Tarradellas Espuny said, adding that the European Commission hopes to include the revised directive in the next energy package to be adopted around November.The public consultation will help the Commission hear the views of interested parties on the best way to revise existing legislation in this field. The Commission expects contributions from EU member states primarily “because it is them that are involved in this structure at the moment, from oil companies, from the car industry, from oil producers.”
Amendments proposed by the commission include changing the method by which oil consumption is calculated, strengthening government control over some stocks and coordinating EU-wide procedures to follow in case of an emergency shut-off.
The 90-day limit itself “has proved sufficient for the past 40 years. Therefore, this basic rule seems not to be in need of changing,” the European Commission wrote in a paper.
Many of the newer EU members, including former Communist states of eastern Europe, are not members of the International Energy Agency (IEA) and the Commission also foresees harmonising national systems and moving closer towards the IEA. Tarradellas Espuny said the Commission is “worried” and “concerned” about the high oil prices. “High oil prices are having a negative impact on economic growth of the European Union but worldwide are having a lot of damage. In the third world it’s terrible,” the spokesman said.
Worldwide, there is an ongoing debate on whether biofuels production should be stopped in view of its negative impact on food stocks and rising prices. “One of the things that are harming food prices very heavily is high oil prices,” Tarradellas Espuny said.
World oil prices threatened to break the symbolic USD 120- a-barrel level last week. One thing that is clearly driving the oil price is that the US dollar has gotten substantially weaker in the past several months and quarter.
Elefterios Verivakis, Greek former energy minister and oil analyst, told New Europe there are three scenarios: The oil bubble could burst in which case oil prices would fall, but not below USD 80; oil prices could continue climbing, gradually propelled by the weak dollar; or oil prices could shoot up to USD 150 in the event of a military conflict or terrorism. “The ping pong game between the oil price and the dollar will continue,” Verivakis said.
The rapid run-up in oil prices over the last two months has also squeezed refiners, which have struggled to transfer skyrocketing oil costs to consumers. Justin Urquhart Stewart, a director at Seven Investment Management in London, told New Europe that consumers are already feeling the pinch of high oil prices. “To an extent they are disgruntled, yes, but bear in mind most of our fuel prices is taxation,” he said. “We have been used to ludicrously high petrol fuel for some time but that nevertheless, that added to the cost of utility bills ... and, of course, domestic taxation adds further pressure on people.”