By Muriel Boselli
PARIS (Reuters) - Germany and Italy are expected to oppose a second release of emergency oil reserves by the International Energy Agency, which needs the backing of all 28 of its members if it is to pour more oil on a volatile crude market.
The IEA is expected to confer with its member countries by July 23 to decide whether to draw further on emergency oil stocks after its June 23 announcement of a 60 million-barrel release.
"Germany and Italy were not much in favor of the decision back in June," the French government source said. "While the decision was unanimous not all were committed."
Asked whether they would resist this time, the source said: "This is likely."
France would not lead any opposition, but neither would it press for a further release, the government source said further.
Immediately after the June announcement, oil prices dropped by around 6 percent, but they quickly bounced back and Brent was trading around $116 a barrel on Friday.
"This is not an operation (the oil stock release) that can be repeated indefinitely," said a European diplomatic source,
"This does not mean the move will not be repeated but this is an operation which is and must remain exceptional. Otherwise it loses its value. It is not a tool for markets."
Even though an unanimous decision is needed for a release within the IEA framework, analysts have not ruled out that the United States, which provided half of the initial supply injection, could act unilaterally.
The French government source said Italy's opposition to a further supply release was in part based on the nation's historic relationship with Libya, while analysts have said Germany's appetite for further action could be tempered by its relative indifference to high oil prices given the strength of its economy.
The IEA has presented its use of strategic stockpiles primarily as a response to the supply shortfall created by the loss of OPEC member Libya's barrels to civil war.
Some analysts, however, have said the tactic was designed to lower oil prices at a time of global economic weakness and there was also a political element in the run-up to the U.S. presidential election.
They say it differed from the two other releases in the IEA's 37-year history, which were immediate responses to sudden rather than ongoing supply disruption.
If it was a strategy to bring down oil prices, the emergency release has yet to deliver convincing results, although a monthly report from the IEA this week "took a resolutely positive view."
It said its action had narrowed the price gap between high-quality, easy-to-refine oil and heavier, more sulphourus grades -- potentially providing an argument to do nothing further for now.
But the monthly market report also signaled a continued supply gap of around one million barrels per day (bpd) between the amount of oil the Organization of the Petroleum Exporting Countries is pumping and the demand for its crude.
It said leading exporter Saudi Arabia's domestic use of fuel to generate power was likely to hit record levels, averaging nearly 600,000 bpd.
The extent of domestic demand limits the amount for sale on international markets of a rise in Saudi oil production, which hit around 9.8 million bpd in June, according to a senior Gulf OPEC delegate.
"They (the IEA) have given themselves justification to do just about anything they want. I'm sure it will be a lively debate internally," said Mike Wittner, an analyst at Societe Generale who previously worked at the IEA.
He thought, however, the most likely outcome of next week's 30-day review of the IEA's emergency reserves release would be a statement saying the agency would continue to monitor the situation.
"It's hard to pull the trigger again on another release when you don't know how much of what's already been released has been taken up," he said.