IEA releases oil reserves to prop up economy

Industrialised oil consumer nations on Thursday announced the release of 60 million barrels of oil from strategic government stockpiles in a bid to push down crude prices and underpin the global economy. The 28-member International Energy Agency said it would release 2 million barrels a day (bpd), mostly of crude, over an initial 30 days to fill the gap in supplies left by the disruption to Libya's output.
The United States will provide half the volumes from its huge 727-million barrel crude reserve, about 1.5 days of US consumption, with Europe supplying 30 pct in crude and refined products and the rest from Pacific OECD nations. The announcement comes after the Organisation of the Petroleum Exporting Countries failed to raise production at a meeting on June 8 and despite assurances from Opec's biggest producer Saudi Arabia that it would lift supplies unilaterally.
Before the Opec meeting Riyadh had discussed a crude swap with the United States that would have seen US reserves supplied to Europe, but failed to reach agreement. "The move is significant as it represents a reach by member countries for the remedy of last resort to high prices," said US energy analyst John Kilduff at Again Capital. "Clearly the energy price spike is being cited as the reason for the economic slowdown and this is reaction to that. The Libyan outage provides good cover."
Opec member Libya was exporting about 1.2 million bpd before the rebellion that brought its oil industry to a standstill. "This supply disruption has been underway for some time and its effect has become more pronounced as it has continued," said the IEA. Libya was likely to remain off the market for the rest of 2011, it said.
"Greater tightness in the oil market threatens to undermine the fragile global economic recovery," the IEA said. Created in 1974 after the Arab oil embargo, this is only the third emergency release in the IEA's 37-year history. Oil prices traded more $6.17 a barrel lower for benchmark Brent crude at just below $108.04 and US crude fell $4.23 a barrel to $91.180 a barrel.
With world oil stocks at comfortably high levels by historical standards, oil analysts were divided on whether prices would fall further or not. "I think the IEA is trying to act like a central bank," said Dominick Chirichella at New York's Energy Management Institute. "I don't think anyone will be comfortable being long oil. We may see (US) oil trading in the $80s very soon." But Carl Larry at Blue Ocean brokerage in New York said prices might not have much further to fall.
The decision appears to represent a departure for the IEA from previous emergency releases and will not go down well with Opec. In the 1990-1991 Gulf conflict when Iraq invaded Kuwait much larger volumes of crude were shut. When Hurricane Katrina in 2005 hit US refineries the IEA release consisted mostly of European refined products to the United States.