Merrill Lynch: IEA's reserve release "too little, too late"

09:34, June 29, 2011      

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The International Energy Agency's latest strategic oil release came "too little, too late", said Bank of America Merrill Lynch on Tuesday.

"The reserve release should come three months ago, when the crude prices didn't start to hike." said Francisco Blanch, head of BofA Merrill Lynch 's Global Commodity Research at the company's 2011 Mid-Year Review & Outlook Press Conference. Blanch was also afraid that IEA's crude release of 60 million barrels would not be enough to hold back the rising energy prices in medium and long term.

IEA announced last Thursday that it would inject 60 million barrels, or 2 million barrels per day into crude markets over an initial period of 30 days. This third strategic reserve release in history was regarded as an response to the supply disruption in Libya, especially after crude export cartel OPEC failed to achieve an agreement to raise output at its meeting June 8.

Blanch's research team wrote in a report released last Friday that IEA's release would cause oil prices falling in short-run. Following the previous tow releases, Brent crude and U.S. WTI dropped by an average of 30 percent and 15 percent respectively.

This time, since the release news came out, oil prices have kept going lower. Until Monday, WTI has been down 5 percent, while the much more global relevant Brent has fallen over 7 percent.

But in medium-term, 60 million barrels were not enough to stop crude climbing up. Blanch pointed out, the absence of Libya's production resulted in a 132 million-barrel supply loss in crude markets through May. "If Libya doesn't come back on line soon, the oil market could tighten sharply in 2012." He said.

Blanch forecast Brent would maintain the average price level of 102 dollars a barrel in the second half of 2011. The concerns about high energy prices were to some extent eased. "Certainly, it is a relief for consumer, just like another round of tax cut," said Blanch, but he did not think it was the right time to fire this silver bullet.

His research team wrote that the global macro cycle is already decelerating and systemic risks are growing due to the unfolding European sovereign debt crisis. And global oil demand has been on a pretty sharp decelerating path across the OECD region and many Emerging Markets have also started to reduce their oil intake, so oil demand growth will soften up further in the second half of 2011.

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