LONDON (Dow Jones Newswires), June 23, 2011
Acting to protect a fragile global economic recovery against a backdrop of continually high oil prices, the International Energy Agency said Thursday it will release 60 million barrels of oil from emergency stocks to address the supply shortfall from Libya.
The move, announced by the agency's executive director at a hastily-organized press conference in Paris, helped send oil prices sharply lower Thursday, the latest drop in the commodity amid increased uneasiness about the economic outlook.
"The global economy is still emerging from recession and it is essential that this recovery not be endangered by an oil supply shortage," IEA Executive Director Nobuo Tanaka said. "The situation is getting tighter and tighter," he said, adding: "we have to act now and to fill the gap."
The IEA almost never diverts from a its public mantra on the need for OPEC and other producers to pump more oil to keep the economy humming. But Tanaka and other IEA officials have sounded an increasingly brittle note over the economy in recent weeks. Tanaka told a St. Petersburg, Russia economic forum last week that he feared a "very hard landing" due to high prices.
The IEA's surprise decision comes less than three weeks after a meeting of the Organization of Petroleum Exporting Countries disintegrated into chaos as members couldn't agree on a plan to boost output. The IEA has subsequently praised unilateral moves by Saudi Arabia and others to boost output without the OPEC agreement. On Thursday, Tanaka said the emergency release was taken to make up for a delay before Saudi supplies hit the market.
The IEA, which represents consuming countries and is responsible for coordinating emergency releases, said it will add an extra 2 million barrels a day of oil, equivalent to around 2% of global supply, into the market for the next 30 days from emergency stocks.
The IEA consulted OPEC members, as well as Chinese officials and representatives from other countries not officially part of the IEA, IEA officials said.
The IEA's move gave further downward pressure to oil prices on a day in which gloomy economic data had already sent crude lower.
Even before the IEA announcement, oil prices had been trading lower Thursday following surprisingly poor labor department figures in the U.S. But the IEA news sent prices lower still.
Light, sweet crude for August delivery tumbled $5.42, or 5.6%, to $89.99 a barrel on the New York Mercantile Exchange. Prices fell as low as $89.69 a barrel earlier in the session, their lowest since Feb. 22.
Brent crude on the ICE futures exchange fell even further, giving up $7.66 or 6.7%, to $106.55 a barrel, a day after the European contract rose sharply.
Crude prices have dropped around 10% since the June 8 OPEC meeting. Investors have fixated their attention on fears of weakening consumer demand and the ongoing debt crisis in Greece has dominated headlines.
The IEA elected not to release oil from stocks earlier this year, when 1.5 million barrels a day of Libyan oil supplies were shut down by the civil war. However, as the Libyan conflict has dragged on in stalemate, the effect of loss of those crude supplies has become more pronounced, the IEA said.
"The normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further. Greater tightness in the oil market threatens to undermine the fragile global economic recovery," the IEA said in a statement.
Demand for oil typically rises in the summer season due to increased gasoline use in the U.S. Oil demand has also exceeded expectations in China as electricity supply problems have prompted higher use of diesel for power generation in China. Oil prices have retreated in recent days, but consumers remain concerned about a supply crunch later this summer.
Previous IEA stock releases followed the first Gulf War and hurricane Katrina.
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