World saves $3.5 trillion from emergency oil stocks

The world has saved $3.5 trillion over the last 30 years by maintaining emergency oil stocks to offset supply shocks and curb price surges, the International Energy Agency (IEA) said.

The IEA said in a report that emergency oil stocks held by member and non-member states have acted as an “insurance” against oil supply disruptions.

Spiralling violence in key oil producer Iraq in recent weeks has pushed global oil prices to nine-month highs, reviving speculation of a release of strategic stocks in case of severe supply disruptions.

Using a model to simulate tens of thousands of possible oil supply disruption scenarios and market outcomes, the report estimated global net benefits derived from existing emergency stocks amount to $41 per barrel per year after storage costs. This equates to some $3.5 trillion over 30 years, it said.

The 29 IEA member states must hold stocks equivalent to at least 90 days of net imports. At the end of March 2014, member countries’ stores totalled 4.1 billion barrels, equivalent to about 44 days of total global demand, the report said.

By the end of 2013, 60 percent of oil stocks in IEA member countries were crude oil and 40 percent refined products such as gasoline and diesel.

Stockdraw has proven to be the most powerful mechanism available to IEA member countries during an oil supply disruption, the Paris-based IEA said.

Limiting oil consumption, particularly within the transport sector which accounts for more than half of all oil use in IEA members, was another way to offset supply disruptions, it said.

The IEA was created in 1974 by 16 Western countries in the wake of the 1973 oil supply shock in an effort to limit the impact of future crisis.

The last major supply disruption occurred in 2011 when output from OPEC member Libya dropped sharply due to civil war.