ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(80)701
Vol.1980/0222

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(80)701final
Brussels,7November1980
OILSUPPLY
(Communication bytheCommissiontotheCouncil)
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C0M(80)701final

OILSUPPLY
Communication bytheCommission
totheCounciL
Attheirmeetingon13May1980/theCouncilinvitedtheCommissionto
examineandreportonactionstobetakenifoilsupplyproblemsarosewhich/
whilenotwarrantingfullemergencysharingarrangements /nevertheless demanded
acoordinated responsebyCommunitygovernments .
2)Meanwhile/theoutbreakofhostilities betweenIranandIraqhavereduced
worldexportsofoilbynearlyfourmillionbarrelsperday.Withthepresent
highlevelofstocksintheCommunity (around130daysofpresentconsumption)/
demandapproximately 9%lowerthanlastyear/andtheannouncement ofproduction
increasesbycertainproducerStates/thereisnoreasontoforeseeanearly
oilshortageandmarketshaveremainedreasonably calm.
. (
3)Nevertheless /individual countries andcompaniesarebeingdifferently
affected/andthesupplyinterruption maybeprolonged."Thereistherefore
needforgovernments toworktogetherinassessingthesituation andintaking
actiontoforestall tensioninoilmarkets.
4)Governments havealreadyagreedthatabnormalpurchasesofoilonthe
spotmarketshouldbediscouraged /andthatarrangements shouldbemadeforany
necessarystockdraw-downrequiredtobalancesupplyanddemandbetweennowand
theendoftheyear;they,havealsoagreedtoreinforceoilsavingandfuel
substitution measures/andtocontinueincloseconsultation /soastodeal
withsituationsofparticulardifficultyforindividual countries.

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5)This communication bythe Commission istoprovide the basis for
consideration bytheCouncil ofthecontinuing action needed atCommunity
andnational level .The purpose istopreserve aflexible approach to
deal with anysituation which maydevelop incoming months ,within the
framework established inCouncil Directive 73/238 ofJuly 1973 .That
Directive ,inter ,alia ,required Member States totake powers todraw on
stocks ,toimpose restrictions <?nconsumption andtoregulate prices .
Italso created acoordination group under thechairmanship ofthe
Commission (now the Oil Supply Group )tocoordinate action inthe event of
supply difficulties .
6)The range ofpossible actions isset out atAnnex .The Commission
regards itasparticularly important that :
(i)all member countries should undertake measures toreduce
s pressure inoilmarkets .These measures maydiffer from
country tocountry according tospecial national circumstances ,
but they should becoordinated atCommunity level and lead to
comparable effects . -
(ii>the possible measures should include
, (a)demand reduction efforts ,which could bestrengthened at
the appropriate time byguidance tocompanies tohold oil
deliveries toconsumers down tospecified levels ;
(b)guidance tocompanies toavoid abnormal oilpurchases ,and
inany case toconsult the government before oil is
purchased atpremium prices onthe spot market orelsewhere
(c)improved and faster collection ofinformation onoil stock
levels ;
(d)closer consultation with industry about stocks ,leading
ifnecessary togovernment guidance onfuture stock levels ;

■■■- I 1
!•>
- ■I■f
-3- ■"1
*·
'!
.OIL ■!
(e)informalarrangements atCommunityleveltodealwith~ |
specialproblems; ;•/'■•. i
(f)consultation ,followedbythenecessaryactionatnational .•
11;''Vu.jfl \ ■' -1:level,wheninternalpricesofspecificoilproductsvary j
bymorethananagreedpercentage fromtheCommunityaverage;'
<g)continuing closeconsultation andcoordination ofactionby
theOilSuppliesGroup,meetingatthelevelofsenior
officials asoftenasisnecessary;
(h)coordination ofactionwithotherconsumingStates,through
theappropriate institutions .
7)Followingconsideration bytheCouncil,theCommissionwillworkout ^
detailedproposalsfurtherasnecessary,inconsultation withtheOilSupply !
Group.
"., '- ' *' '■?
}
I

Areasofopportunity foractionANNEX
Attimesofartificialdisruption ofthesupply/demandbalance,itis
necessarytosupplementtraditional marketforcesbyadditional
measures/especiallytoavoidincreasesinmarginalsupplypricesto
unnecessarily highlevels.Thesemeasuresmaynotnecessarily be
thesameinthedifferentcountries butshouldleadtocomparable
effects.:,
Thiscouldtakethefollowingalternative butcomplementary forms:
' -
-Actiononpricesthroughdiscouraging thepurchaseofhigh-price
oilbytheoilcompanies.Thisactioncanbereinforced by
consumerpriceandtaxationpolicies;
-Actiononsupply/demandthroughspecificmeasuresofdemand
reduction and/orstockpolicy;
-Increasesinindigenousproduction. •/.
Whichevercourseorcombination ofcoursesisadopted,itmustbe-
co-ordinated notonlyatCommunitylevelbutwithothercountries,
notablytheUSAandJapan.
1 .-
a)Discouraging oilcompaniesfrommakingpurchasesatexcessiveprices
i)Governments shouldagreethatspecificandsumultaneous action
willbetakentodiscourageoilcompaniesfrommakingcrude
oilandproductpurchasesatexcessivepricesand/oraccepting
dealsthatincludeancillaryelements (discounted salesof
goodsorservices,'etc.)whicheffectively increasethereal
pricepaidfortheoil.Governments themselves shouldalso
adoptthesamelevelofself-discipline inthecontextofany
state-to-statedeals.

ii)Theformofthisactionwoulddependuponindividualnational .
circumstances ,butcouldinclude:,
■-adviceorguidancetocompanies,supportedbyaspecific
requesttoconsulttheGovernment beforehigh-pricedoil-
ispurchased;' ."
•-voluntarypricediscipline orpricecontrolsforthemain
oilproducts,ex-refinery and/oratconsumerlevel,to
--ensurethatcompanieswillnot,beabletorecoupthecpst
'of'high-price .purchases;- •
.-administration oftaxationlaw,-wherepossible,to,penalize -
high-price purchases andsales. ' '
Inar»V:event,governments must,avoidpressingoil/companiesto
-maintainsupplyregardless ofcost. *:...
b)■Bemandreductich '
governments ,should;reactina'.'flexiblemanner -'toreducedesnan<d
ascortiirig-to-th?severity ,ofthesupply'disruption ™.Such-'a
- ■■■ , ; . -1
.-tie**bierreactioncouldbe.operatedinthreephases;' -" , •.
-13coverageof.smallisolated'deficitfcithout -the -need'.•'*
'foroenerai .consumption reduction; "• .-(
ii)coyer&geeta.quantit-ativelylargerdeficit'necessitating
consumption reductions -whichneed-not-be',thesame -inall' ■-
-MemberSl-etesbutwhichwouldreflectthe-degreeof'.'.-
reductionheededfneachMember'State;. ,/._''
•'ill)amors,serious'situationjustifyingIdenticalconsumption
reductioninallMember,statedwithoutnecessarily identical ,'
.rce'asures «;- - , '
*•Intails'-context,'companies may.beadvisedtoreduce,deliveries bya
-specificpercentage toallexceptprioritycustomers -.It-'hasbeen
arguedinthepastthatthiswould'createunnecessary publicalarm.
Thisneednot'be'so,if.-theactionisexplainedtothepublicvsaway
ofensuringfairsharesandofavoidingruinousincreasesi"oilprices.

Thismethodofreducingdemandwouldbequick,shouldnotrequire
complexgovernmentcontrols,andcouldbereinforcedifgovernments
wishedbyspecificgovernmental measures(e.g.banonSundaydriving,
lowerheatingtemperatures ,etc.).
•\
Whenseekingtopersuadecompaniestofollowaparticular courseof
actiontoreducemarkettension,itmustberecognisedthatcertain
actionsbycompaniescouldleavethemopentolegalactionbytheir .V
customers.Consequently ,government guidancemustbeinasufficiently
officialformtoallowcompaniestopleadappropriate exemption
clauseswherenecessary.
Governmentswillwishtoconsidermeasurestohelpcompanies whoare
leftshortofcrudeoilorproductsby,forexample,givingpermission
tothesecompaniestorundownstockstemporarily orencouraging
inter-company exchanges.Hereagainanygovernment actionmustbe
/
takeninawaythatwillprovidelegalclearanceforthecompanies.
■ ■ i
)Stockpolicy
Thebuildingofoilstocksinanticipation ofshortages and/orprice
riseshasbeenoneofthecausesofmarkettensionin1979and1980.
Communitystocksarenowmuchhigherthaninotheryears.Aflexible
stockpolicyisoneopportunity foraction.Communitycountriesshould
continuetoconsultwiththeindustryandbetweenthemselves about
stocklevelsandfuturecompanystockpoliciesandbepreparedtogive
guidancetocompanies (onabasisagreedinformally )nottoincrease,
oreventorundown,stockforalimitedperiod(orofcoursethe
reverse,depending oncircumstances ).
Areductionof10days'stockswouldinfactallowfulldemandtobe
metfor6monthswitha5%supplydeficit.
Thesignificance ofstocksissuchthatafasterandmorefrequent
ad-hocstockreporting systemshouldbesetupinapermanent way
toimprovetransparency onstocklevels.Detailsare beingworked ,
outinconsultation withtheindustry,andtheCommissionwillshortly
bringforwardaproposedschemeforimplementation .

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i
d)Measures toincrease Community production
Increasing Community production ismainly alonger term prospect through
theencouragement offurther investment inoiland gasexploration and
production .Reports bythemain producing countries (UKandNetherlands )
which have been circulated atofficial level ,show little scope forquick
increases inanemergency . •.
\
e)Oilsharing atCommunity level
'' ' . . V. . ' •
There are wide differences between national situations ,and itmight be
necessary tofind supply arrangements tocorrect imbalances between companies
andcountries .Anyinformal arrangement should rely onthevoluntary
co-operation ofthe oil industry onaninternational basis .
Thus companies could beasked todirect limited supplies ofoil tospecific
destinations ,andpossibilities ofincreasing intra-Community exchanges of
oil,gasand coal could beexploited -all inadvance oftheintroduction of
full emergency sharing arrangements .
f)Price policies
Price policies canbeaninstrument toreinforce the "dissuasion "ata)above ,
but itshould also betaken into account that oilproduct prices ,before and
after tax,vary widely intheCommunity .Some differences will always exist >
because ofdifferent structures ofdistribution costs ,etc.,buttoo-wide
differences should beavoided .inorder tolimit the risk oflimited supplies
being channeled away from areas oflowreturn .The information now
circulated bythe Commission allows reasonably up-to-date comparisons tobe
made .When individual governments find that theprice for aspecific product
varies bymore than anagreed percentage from theaverage ,then after having
checked thecomparability ofthestatistic they should seek anexplanation by
anexamination oftheir own internal pricing procedures and/orbydiscussion
with oilcompanies ,andsubsequently decide whether action isnecessary .