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Oil prices plunge after U.S., allies announce release of reserves

By Cezary Podkul,

Oil prices tumbled to their lowest level in four months Thursday after the United States and 27 allies announced that they would release 60 million barrels of crude oil from reserves to offset the disruption of oil supplies from Libya.

The announcement sent U.S. stocks sharply lower in early trading before they recovered most of the lost ground by the end of the day.

The market swings reflect an element of surprise at the action taken by the United States and its industrialized allies in the International Energy Agency, analysts said. Even though the collective 60 million barrels is less than what the world consumes in one day, its coordinated release marks the largest-ever such intervention by the energy group.

“The purpose . . . is to lower prices and avoid a second recession, because we’ve been at price levels that are clearly contributing to the slow economy,” said James Williams, an energy economist with WTRG Economics in London, Ark. “It’s all about the economy.”

Oil prices had already begun to ease in recent weeks after shooting upward in mid-February when the Libyan conflict intensified, causing fears of a supply disruption.

After closing over $95 a barrel on Wednesday, crude oil prices plunged by more than $4 a barrel Thursday, sending them to levels last seen in February.

Williams attributed the drop to expectations that the extra oil would help bridge supplies until Saudi Arabia increases its oil production.

The International Energy Agency announcement also weighed on global markets.

The Dow Jones industrial average ended the day down 0.5 percent, while the Standard & Poor’s 500-stock index closed down 0.3 percent. Both indexes had fallen nearly 2 percent in late-morning trading. The Nasdaq, a more technology-heavy index, ended the day up 0.7 percent.

The impact was more pronounced overseas. Europe’s blue-chip stock index, the Euro Stoxx 50, ended the day down 2.3 percent. Major stock indexes in Great Britain and France also lost close to 2 percent.

Economic indicators also weighed on stocks Thursday. New-home sales fell 2.1 percent in May to 319,000, from April’s level of 326,000, according to Commerce Department data. Sales were up 13.5 percent compared with the same period last year.

The South, which includes Washington, had the most home sales, at 172,000, while the Northeast had 22,000 and the Midwest had 42,000.

The median sales price for new homes fell 3.5 percent to $222,600 compared with the same period last year.

“Housing’s a total disaster,” said Wells Fargo senior equity strategist Scott Wren.

And the job market remains difficult, according to data released Thursday. The Labor Department announced that 429,000 people filed for unemployment benefits last week, 9,000 more than the previous week.

“I would argue the markets are down on all this other news,” Wren said.

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