U.S. to seek G8 support for oil reserve release: Kyodo

Reuters News
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Posted: May 18, 2012 7:37 PM
U.S. to seek G8 support for oil reserve release: Kyodo

WASHINGTON/PARIS (Reuters) - U.S. President Barack Obama will seek support to tap emergency oil reserves from other Group of Eight leaders at a summit this weekend before the European Union's July embargo of Iranian crude, Kyodo news agency reported on Wednesday.

The report suggests that a slide in oil prices to their lowest in months has not halted U.S. efforts to use strategic oil stockpiles to offset diminishing exports from Iran, which is facing tough new sanctions on its oil industry.

The EU ban on imports comes into full force in July.

Kyodo said Japanese Prime Minister Yoshihiko Noda was expected to support the call, which comes after several months of discussion with allies including France and Britain. It is the first indication that Japan may support the move, although it is far from clear that skeptical nations like Germany have been won over.

The White House declined comment on the report.

"General energy and climate change issues will be discussed at the G8, as part of a larger focus on the economic issues. As we have said repeatedly, all options remain on the table, but we have no additional announcement to make," an administration official said.

Separately, a French diplomatic source suggested that newly-elected Socialist President Francois Hollande was also prepared to go along with efforts to tap government-held stockpiles, a change of stance from prior to the vote.

"The U.S. has an approach that we don't condemn," a diplomatic source under the new presidency said, without specifying what the U.S. approach was. "I think the discussions will be easy and I don't expect any conflict on this question," he added ahead of a Friday meeting between Obama and Hollande.

In pursuing what would be an unprecedented second release of the Strategic Petroleum Reserve during his term, Obama may be embarking on a risky political strategy. While he may help head off a damaging spike in gasoline prices this summer, he also risks attack from foes who argue that the SPR should be reserved for use only in the event of a supply crisis.

"As an economic matter, the timing would require explanation. As a foreign policy tool this would be a smart bomb detonated in the heart of the Iranian economy with no physical casualties," said David Goldwyn, who headed international energy affairs at the State Department until early 2011. "You have to love the move from a strategic perspective."

U.S. crude oil prices, which were already down sharply when the news hit, edged still lower after the report. Oil closed down 1.24 percent at $92.81 a barrel.

Oil traders have been on alert for a possible SPR release since March, when news of discussion first surfaced amid signs that Iran's oil exports were already starting to suffer. But prices have fallen 16 percent since then, dropping to their lowest in months on concerns about global economic growth.

SATURDAY DISCUSSION

Obama will raise the request during a discussion of energy issues on Saturday at the meeting in Camp David, stressing the need to stabilize oil prices and demonstrate solidarity in putting more pressure on Iran, Kyodo reported, citing sources close to Japan-U.S. ties that it didn't name.

Kyodo said that it was uncertain whether other G8 countries would support Obama's call. Some, such as Germany, have tended to resist using emergency stockpiles. The International Energy Agency's chief Maria van der Hoeven said two weeks ago she saw no need for tapping stocks as the market was well supplied.

A representative for the IEA, which coordinates energy policy among the world's industrialized energy consumers, had no comment on Wednesday.

Energy Commissioner Guenther Oettinger told Reuters earlier on Wednesday that the European Commission is in close contact with the United States and the IEA, but sees no immediate need for any release of oil stocks.

Kyodo did not provide any details as to when such a release could occur, but many analysts say Iran's exports could decline sharply from July as tough new EU sanctions on oil shipments come into full effect.

Last year, the IEA coordinated a global release of 60 million barrels in order to offset the war in Libya, which had cut off the OPEC member's 1.2 million barrel per day of exports.

High gasoline prices remain a vulnerability for Obama ahead of the November 6 election, even though they have slipped for six straight weeks.

Edward Markey, a Democratic congressman who has urged the president to use the reserves, said Obama's discussion in recent months had already helped take some speculative money out of oil prices.

"Going forward, the uncertainties arising from Iran's nuclear ambitions, and the prospect of economic sanctions against Tehran, justifies the president's coalition-building to deploy oil reserves if needed to protect American drivers and the world economy," he said in a statement.

Republicans say Obama could do much more to open up oil drilling on public lands and have blasted his decision to delay permitting of the Keystone XL pipeline to ship Canadian crude south to the United States. Obama, on the other hand, has noted that U.S. oil production has risen steadily in the past few years.

(Reporting by Jonathan Leff, Tim Gardner, Roberta Rampton and Ayesha Rascoe in Washington, and Muriel Boselli in Paris; Editing by Maureen Bavdek, David Gregorio, M.D. Golan and Marguerita Choy)