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Editorial comment

One of the biggest debates to hit the oil industry this year is the decision by the IEA to release oil stocks to the market from the 1.6 billion bbls of the OECD reserves that are under its control. It was hoped that the strategic release would offset the lack of oil coming out of Libya due to the nation’s state of conflict, which costs the oil market approximately 1.5 million bpd. It has also been voiced that these stocks were made available in response to the OPEC meeting of 8th June, which failed to reach a conclusion. 60 million bbls of oil were to be released over 30 days from 23rd June. 3 million bbls came from the UK, 30 million came from the US and the rest came from the remainder of Europe (15 million bbls) and Asia (12 million bbls).

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UK Secretary of State for the Department of Energy and Climate Change, Chris Huhne, said that the ‘global action shows that both producer and consumer nations around the world are taking decisive steps to ensure enough oil is available.’ US Department of Energy Secretary, Steven Chu, also had positive comments to make about the decision saying that the move is a response to supply disruptions and that the situation will be monitored and that ‘additional steps [will be taken] if necessary.’

However, not all are happy with the measures taken to help the oil market. National Petrochemical and Refiners Association (NPRA) president Charles T. Drevna announced that the release of 30 million bbls from the American Strategic Petroleum Reserve (SPR) made ‘no sense and weakens economic and national security.’ This can be perceived to be correct as at the time there was no overly observable shortage in the oil supply market and prices were beginning to stabilise. Mr Drevna also commented that making the barrels available left a gap in the SPR making the country more vulnerable to natural disasters such as hurricanes and when situations such as ‘foreign crisis causes a real supply shortage,’ both of which are valid points of debate. The American Petroleum Institute (API) was also displeased with the 30 million barrel US release. API President and CEO, Jack Gerard called it a ‘raiding of the SPR’ and proposed that the White House should ‘commit to a long term energy policy that will put thousands of Americans to work’ and criticised the moratorium on the Gulf of Mexico as having already deprived the US oil industry of 60 million bbls.

Merrill Lynch also passed comment, but on the IEA’s decision as a whole, rather than just the affects on the US. It has dubbed the move by the IEA as ‘too little, too late’ and has called the agency ‘too slow’ in their reaction to the fallout of the conflict in Libya and suggested that the announcement and release should have been made in March or April. But contrary to the negative effects Mr Gerard and Mr Drevna think the freeing up of stocks will have on the US market, Merrill Lynch believe that it will do more for the US than any other area, in particular the ‘tight Asian market’.

With reference to the two previous stock releases, the release could have both negative and positive impacts on the oil market as a whole. While it helps bridge the gap left by Libya it will help reduce prices in the following months as prices dropped by 30% and 15% on the previous occasions. The EIA reported in the ‘This Week in Petroleum’ report on 13th July that the release ‘does appear to have lowered near term prices relative to longer term.’ Furthermore, they have stated that it has ‘changed the market’s assessment if the probability that oil prices might rise to much higher levels in the future.’ Also, it is expected that the move will help economic activity well in to 2012. However, it is understandable that there is tension surrounding the decision, as it is possible that the market will only benefit in the short term and in the medium term prices will inevitably rise and certain nations that donated to the stockpile now have large holes in their reserves.

In this issue we are debuting our compressor review with entries from Siemens, Elliot Turbo, Sulzer and Burckhardt. The regional report on Latin America comes from Nancy Yamaguchi, Contributing Editor and the regional focus is furthered with an article from Foster Wheeler looking at a Colombian case study and our ‘15 facts on…’ feature on the last page.