LONDON(Commodity Online): And so the disagreements and disapprovals begin. OPEC's Secretary General Abdullah al-Badri is reported to have told a news conference that he hopes that “this practice will be stopped and stopped immediately…we don't see a good reason to release this quantity and I hope the IEA will refrain from using this practice", referring to IEA’s SPR release. Indeed, as we highlighted, in general, past experience has been that producer governments have not responded well to consumer governments’ public requests that output be raised and most definitely not when, despite an accommodative stance by key producers, the consumer government almost takes over the role of the marginal supplier to the market. The consumer-producer relationship was not particularly rosy even before the OPEC meeting, with consumer governments returning to the issue of whether and when they should pull the trigger for a release of strategic stocks, even if only a symbolic one. In response, the Secretary General of OPEC, Abdullah al-Badri, was quoted as saying: “We never interfere in the IEA and really we don’t want them to interfere in our business. They should do it in a professional manner. We should not talk to each other through the media.” The use of the SPR, especially at the risk of its being viewed as a threat to OPEC as per the IEA’s previous statements, will likely only accentuate this disaccord, as evident by al-Badri’s latest comments. The net result, in our view, will be lower Saudi volumes at the end of 2011, and once the temporary stock release is over, the flow of Saudi Arabian crude is likely to dry up, tightening balances by year-end and into 2012. Moreover, the IEA’s rationale to lower oil prices in order to support economic growth is flawed at several levels, not least due to the fact that stronger macroeconomic growth is perhaps the biggest catalyst for higher oil demand growth and hence higher oil prices in turn. As a result, we do think that the IEA has inadvertently laid the grounds for significant market tightening in 2012, even though the short term impact is more plenty of crude and products availability. Additional to the 30 mb of crude release in the US, the IEA said Japan and Korea were also releasing over 11 mb of crude and product inventories, while in Europe, the member countries would release 19.2 mb, of which only 4.2 mb will be crude. Given the IEA’s claims that the underlying reason for the SPR release was the loss in Libyan crude, the combination of higher products and lower crude release in Europe runs contrary to claims. In fact, this goes to highlight our view that the decision to release strategic stocks was indeed extremely political. In Europe, crude will primarily be released in Germany and the Netherlands, while products (comprising of 3.4 mb of gasoline, 7.65 mb of diesel, 1.2 mb of fuel oil and 0.42 mb of jet fuel) will take place in France, Italy, UK, Germany, Spain and Turkey. August Brent ended up on the day by 87 cents to $105.99/bbl, with the front to second differential moving back to a mild backwardation having been in contago the previous day. However, the curve remains in mild contango for over a year out.

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