The IEA Position.

The Paris-based International Energy Agency hopes OPEC will exercise caution on output policy during its Dec. 10 meeting and allow world oil stocks to continue building.

IEA chief Claude Mandil on Dec. 2 urged OPEC to keep production unchanged at its Cairo conference on Dec. 10. He told reporters: "I hope OPEC will be wise and let stocks rebuild to adequate levels. They have proved to be wise in the past months".

Mandil said: "I think the price still has margin to drop to rebuild stocks but mainly to allow the world economy to grow". Despite the big fall in WTI and Brent futures prices in the past week, they are still over 30% up from the start of 2004.

Edmund Daukoru, Nigeria's presidential adviser on petroleum affairs, reiterated on Dec. 2 that he it did not believe OPEC needed to rein in over-production. "The prices are still up there", he said on the sidelines of an international conference in Rome on LNG.

The IEA: Governments Should Make More Active Use of Strategic Oil Stocks: William Ramsay, deputy executive director of the IEA, which co-ordinates energy policy for the members of the Paris-based Organisation for Economic Co-operation and Development (OECD), last week said the governments holding emergency stockpiles of oil should explore new ways to use the reserves, given that lower inventories held by companies have contributed to the high prices in recent years.

Ramsay, a former US ambassador, said it was understandable for private oil companies to want to save money by reducing commercial stocks. The shift, however, means governments need to show "a bit more creativity" in using the stocks, given the sensitive state of oil markets.

While making clear that strategic reserves should not be used to try to influence prices, Ramsay said it is "rather unacceptable" that relatively minor disruptions such as a tanker problem or a cold snap can throw off world oil markets. As an example, Ramsay praised a recent move by the US to swap crude oil from the Strategic Petroleum Reserve (SPR) after Gulf of Mexico oil and gas production was curtailed due to Hurricane Ivan in September.

"The question is whether too much responsibility has been shifted to governments", he said. But putting new stocking requirements on private industry is not necessarily a solution if companies are able to operate with lower levels of inventories, Ramsay said.

Several European countries, including France, Spain and Holland, have bolstered their government stocks in recent years, as commercial inventories have dwindled.

The IEA views state-managed stocks as more reliable for strategic purposes. Ramsay cautioned against using stockpiles as a means to lower prices, as a market impact would be ephemeral. The purpose of stocks should be an emergency antidote to supply disruptions, he said.