Thursday, June 23, 2011
Oil Prices Plunge as IEA Releases Emergency Supplies
June 23, 2011 - The International Energy Agency announced today that 60 million barrels of crude oil stocks would be released immediately by the U.S. and 27 allies. The IEA move comes as an attempt to ease the effects of the recent loss of Libyan crude oil exports. One effect of the IEA move, it is hoped, will be a lowering of gasoline prices for consumers and businesses. (New York Financial Press video report below.) The Telegraph (UK) reports today (at 4:13 PM London time) that oil prices "crashed more than $7 a barrel to a four-month low on Thursday after the world's consumer nations said they would band together to aid the global economy by releasing emergency oil reserves for the third time ever." The IEA announcement coincides with a sharp drop in stocks on Wall Street, partly caused by the IEA's decision. The euro also dropped sharply as oil prices tumbled The fact that there was a higher than expected rise jump in unemployment benefits claims in the U.S. did nothing to increase optimism in the markets. The Telegraph report says that the effect on Wall Street traders was stunning. "The move shocked traders who had been expecting the IEA to give top exporter Saudi Arabia more time to make up for the supply shortfall following OPEC's failed meeting on June 8, when other members blocked Gulf efforts to hike output." On Wall Street, the Dow Jones fell 1.7 percent to 11,904. London's FTSE 100 lost 1.7 percent, France's CAC lost 2.4 percent. Germany's DAX lost 2 percent. The euro fell 1.4 percent against the dollar to $1.4152. In an earlier report this morning (7:39 AM EST), the L.A. Times ran a Bloomberg.com report that said today's move was not the first time that the IEA has influenced the release of crude reserves. Since its foundingin 1974, the IEA "has coordinated the use of emergency stockpiles twice.... The first occasion was during the 1991 Persian Gulf War, and the second when Hurricane Katrina damaged oil rigs and refineries in the Gulf of Mexico in 2005. The IEA is an energy policy adviser to 28 industrialized nations including the U.S., Japan and Germany." Only time will tell how deeply the IEA mandated release of crude oil reserves will affect fuel oil prices. One factor, of course, is the cause of their decision: The unrest in Libya, which has caused the Libyan production to falter. If that conflict continues for any great length of time, today's IEA release will be meaningless in the long run.