Oil prices fell to a four-month low after the International Energy Agency said its members will release 60 million barrels of crude from emergency stocks, half from the U.S. strategic reserve, to offset production lost to the unrest in Libya, only the third time in its history that the IEA has intervened in this way.
The move on Thursday came two weeks after the Organization of Petroleum Exporting Countries roiled oil markets by failing to agree to raise production, despite pleas from consuming nations worried about oil prices that have risen nearly 20% this year. It comes against a backdrop of concern in the U.S. about soaring gasoline prices that have put pressure on the Obama administration.
Crude on the New York Mercantile Exchange was down 4.8%, to $90.87 a barrel, early Thursday afternoon. Brent crude was down 6%, at $107.71, on the ICE futures exchange.
In the wake of the OPEC meeting, producers led by Saudi Arabia said they would unilaterally increase production to meet rising demand in coming months. But the IEA said the oil would take some time to come onto global markets, and in the meantime, its emergency stock release would "help bridge the gap."
he IEA, a Paris-based watchdog that advises industrialized countries on energy policy, said it made the move because greater tightness in the oil market "threatens to undermine the fragile global recovery." "I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy," IEA Executive Director Nobuo Tanaka said.
About half of the 60 million barrels would be released by the U.S., 30% by Europe, and 20% by Asian countries. It said stocks should begin hitting the market about the end of next week.
The move reflects frustration at OPEC's unwillingness to make up the shortfall in oil supplies caused by the Libyan civil war, which has knocked out some 1.4 million barrels a day of high-quality crude. Libyan oil has proved difficult to replace, and analysts expect it to remain off the market for the rest of this year.
Aides to President Barack Obama said Thursday that he had been "deeply concerned about the impact that the disruption [in oil supplies] has had on the oil market globally." The officials declined to speculate on what impact the release would have on oil or gasoline prices or what steps the U.S. would take after 30 days.
The release represents an about-face for an administration that has resisted calls to unleash its storage of oil despite high gasoline prices. The move rippled through the stock market, with the Dow Jones Industrial Average down nearly 200 points in early Thursday afternoon trading, in part from the intervention. The move drew criticism from the oil and gas industry, as well as U.S. lawmakers from both sides of the aisle, who said the move is aimed at scoring political points rather than addressing a scarcity of oil supplies in the market.
The administration has said the reserves should be tapped only during emergencies, not solely because Americans are feeling pain at the pump.
"The Obama administration's decision to release oil from the Strategic Petroleum Reserve is ill-advised and not the signal the markets need," said Karen Harbert, president and CEO of the U.S. Chamber of Commerce's Energy Institute in a statement. "Unrest in the Middle East is likely to continue for quite some time, so a temporary increase in supply is not a substitute for a long term fix. Our reserve is intended to address true emergencies, not politically inconvenient high prices."
A leading voice on energy policy in Mr. Obama's party, Senate Energy Committee Chairman Jeff Bingaman (D., N.M.) said the decision to release stocks would have been "more timely if made when the disruption in Libyan oil supplies first occurred."
IEA officials said the loss of Libyan barrels was less keenly felt earlier in the year, when demand for refiners was at a seasonal low. But going into the summer, demand is set to rise again.
Some OPEC countries reacted angrily to the emergency release, fearing it would drive down prices for crude. Many oil-producing countries, worried about the repercussions of the Arab Spring uprisings in North Africa and the Middle East, have increased welfare spending and now require a higher oil price to balance budgets.
Richard Jones, the IEA's deputy executive director, said the move wasn't directed at OPEC, and the IEA had held consultations with the cartel—as well as big oil consumers that aren't members of the IEA, such as China—before deciding to release stocks.
Some analysts questioned why the IEA had decided to make more oil available to the market at a time when oil prices are on the way down. Brent futures, having reached a peak of $127 a barrel in April, have been trading at lower levels since then. David Fyfe, the IEA's chief oil markets analyst, said the decision was "not dictated by price," but by "a real and actual disruption to the market at a time when demand is rising on a seasonal basis."
IEA member countries have used stocks in this way only two times before, once in 2005, after Hurricane Katrina damaged offshore oil rigs, pipelines and refineries in the Gulf of Mexico, and once at the time of Iraq's invasion of Kuwait in 1990.
The move on Thursday came two weeks after the Organization of Petroleum Exporting Countries roiled oil markets by failing to agree to raise production, despite pleas from consuming nations worried about oil prices that have risen nearly 20% this year. It comes against a backdrop of concern in the U.S. about soaring gasoline prices that have put pressure on the Obama administration.
Crude on the New York Mercantile Exchange was down 4.8%, to $90.87 a barrel, early Thursday afternoon. Brent crude was down 6%, at $107.71, on the ICE futures exchange.
In the wake of the OPEC meeting, producers led by Saudi Arabia said they would unilaterally increase production to meet rising demand in coming months. But the IEA said the oil would take some time to come onto global markets, and in the meantime, its emergency stock release would "help bridge the gap."
he IEA, a Paris-based watchdog that advises industrialized countries on energy policy, said it made the move because greater tightness in the oil market "threatens to undermine the fragile global recovery." "I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy," IEA Executive Director Nobuo Tanaka said.
About half of the 60 million barrels would be released by the U.S., 30% by Europe, and 20% by Asian countries. It said stocks should begin hitting the market about the end of next week.
The move reflects frustration at OPEC's unwillingness to make up the shortfall in oil supplies caused by the Libyan civil war, which has knocked out some 1.4 million barrels a day of high-quality crude. Libyan oil has proved difficult to replace, and analysts expect it to remain off the market for the rest of this year.
Aides to President Barack Obama said Thursday that he had been "deeply concerned about the impact that the disruption [in oil supplies] has had on the oil market globally." The officials declined to speculate on what impact the release would have on oil or gasoline prices or what steps the U.S. would take after 30 days.
The administration has said the reserves should be tapped only during emergencies, not solely because Americans are feeling pain at the pump.
"The Obama administration's decision to release oil from the Strategic Petroleum Reserve is ill-advised and not the signal the markets need," said Karen Harbert, president and CEO of the U.S. Chamber of Commerce's Energy Institute in a statement. "Unrest in the Middle East is likely to continue for quite some time, so a temporary increase in supply is not a substitute for a long term fix. Our reserve is intended to address true emergencies, not politically inconvenient high prices."
A leading voice on energy policy in Mr. Obama's party, Senate Energy Committee Chairman Jeff Bingaman (D., N.M.) said the decision to release stocks would have been "more timely if made when the disruption in Libyan oil supplies first occurred."
IEA officials said the loss of Libyan barrels was less keenly felt earlier in the year, when demand for refiners was at a seasonal low. But going into the summer, demand is set to rise again.
Some OPEC countries reacted angrily to the emergency release, fearing it would drive down prices for crude. Many oil-producing countries, worried about the repercussions of the Arab Spring uprisings in North Africa and the Middle East, have increased welfare spending and now require a higher oil price to balance budgets.
Richard Jones, the IEA's deputy executive director, said the move wasn't directed at OPEC, and the IEA had held consultations with the cartel—as well as big oil consumers that aren't members of the IEA, such as China—before deciding to release stocks.
Some analysts questioned why the IEA had decided to make more oil available to the market at a time when oil prices are on the way down. Brent futures, having reached a peak of $127 a barrel in April, have been trading at lower levels since then. David Fyfe, the IEA's chief oil markets analyst, said the decision was "not dictated by price," but by "a real and actual disruption to the market at a time when demand is rising on a seasonal basis."
IEA member countries have used stocks in this way only two times before, once in 2005, after Hurricane Katrina damaged offshore oil rigs, pipelines and refineries in the Gulf of Mexico, and once at the time of Iraq's invasion of Kuwait in 1990.
