World Faces `Oil Crisis;' IEA Ready to Tap Reserves

By Shigeru Sato and Yuji Okada

June 11 (Bloomberg) -- The world faces an "oil crisis,'' and the International Energy Agency stands ready to release emergency stockpiles even as the biggest consumers discuss measures to contain spiraling demand, the agency's chief said.

"Any major oil-plant accident can cause a supply disruption,'' Executive Director Nobuo Tanaka said in an interview in Tokyo. "We at the IEA are monitoring the oil market and preparing ourselves to call for the release of strategic petroleum reserves at any time in the event of a major disruption.''

Consumption in China and India, the world's fastest-growing major economies, has helped drive crude oil prices to "abnormally high'' levels above $130 a barrel, Tanaka said. The U.S., Japan, and 25 other rich countries advised by the IEA have discussed stop-gap measures to reduce consumption, including lowering speed limits and restricting cars in cities, he said.

"We can call it an `oil crisis' given the current price, and that it continues to climb even after global efforts to cut consumption,'' Tanaka said. "We see a critical, structural issue in the global oil market, where supply growth isn't catching up with demand.''

Unlike the oil crisis in the 1970s, which was driven by supply restraints from the Middle East, the current situation is fueled by soaring demand, the IEA chief said. Speculative investment in commodities is also a driving force behind record prices, he said.

Commodities Speculators
Crude oil futures have doubled in the past 12 months, and investors looking to hedge against the dollar's drop helped push oil, gold, corn and gasoline to records this year. Oil for July delivery was at $132.62 a barrel, up $1.31, at 2:56 p.m. Singapore time in electronic trading on the New York Mercantile Exchange.

The U.S. Commodity Futures Trading Commission set up an interagency task force to evaluate developments in commodity markets, including the role of speculators, the commission said yesterday. The CFTC held talks with the U.K. Financial Services Authority about the possibility of introducing limits on the positions traders can take in London's oil markets, the Financial Times reported today.

"I want the CFTC to set new rules and regulations that will help increase the transparency of the oil market,'' Tanaka said. "It's necessary to some extent to find out who invests what kind of money in which markets.''

Tanaka will take part in the Group of Eight industrialized nations' finance ministers meeting this weekend in Osaka, Japan.

Hurricane Katrina
IEA member-states are required to hold oil stockpiles equivalent to no fewer than 90 days of the prior year's net imports. The agency calls on countries to release emergency reserves of oil if supply is threatened.

In September 2005, all IEA member-countries, in cooperation with the E.U., agreed to offer a total of 60 million barrels of oil and oil products to the market within 30 days as a response to disruptions caused by Hurricane Katrina, which hit the U.S. Gulf.

U.S. Congress introduced a national speed limit of 55 miles (88 kilometers) an hour, in effect from 1974 to 1984, to conserve fuel in the face of the 1973 oil crisis.