The International Energy Agency announced they will release 60 million barrels of oil from their reserves, half of which will come from the U.S. reserves. As Steve Mufson and Zachary A. Goldfarb reported:
United States and its industrial allies in the International Energy Agency announced Wednesday that they would release 60 million barrels of crude oil from reserves over the next 30 days. The news immediately sent oil prices down about five percent.
The release would be the biggest ever coordinated from strategic reserves, and over the next month it would exceed the amount of oil lost on world markets since the fighting in Libya. Half of the release would come from U.S. reserves.
The president made the decision out of concern that the drop in oil production in the Middle East was slowing economic growth in the United States and abroad, said a senior White House official who was authorized to speak only on condition of anonymity.
The administration said it would also consider taking additional steps to bring down the price of oil at the end of the 30 days.
“The U.S. stands ready to do more, as and if necessary, to address this issue,” the administration official said. Energy Secretary Steven Chu said earlier that Wednesday that “as we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary.”
Recent data on the nation’s economic recovery have been grim, with the unemployment rate around 9 percent. The move comes just as gas consumption is rising with the summer driving season, and it could bring some relief to consumers at the pump and to economies that have been already struggling to recover from economic downturn.
According to the Energy Department, the 30 million barrel release would be the largest ever from the U.S. strategic reserves.
In response to the surprising move to release millions of barrels of crude oil into the market, oil prices dropped to its lowest price in several months. As Margot Habiby explained:
Oil tumbled to the lowest price in four months after the International Energy Agency said its members would release crude from strategic reserves.
Oil fell as much as 5.3 percent as the agency announced the release of 60 million barrels to partially alleviate the effect on supply from a 132-million barrel disruption caused by the unrest in Libya. The IEA said 2 million barrels a day would be available in the first 30 days.
“The big driver is the IEA number,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “The market started moving lower as soon as the IEA announced that it was having a press conference as people anticipated this very thing.”
Oil for August delivery dropped $4.55, or 4.8 percent, to $90.86 a barrel at 9:34 a.m. on the New York Mercantile Exchange. Earlier, futures touched $90.32, the lowest level since Feb. 22. Prices have gained 19 percent in the past year.
Brent crude for August delivery fell $6.38, or 5.6 percent, to $107.83 a barrel on the London-based ICE Futures Europe exchange. Prices have risen 41 percent in the past year.
It’s only the third time in the history of the IEA the reserve has been tapped. The first was during the 1991 Persian Gulf War, and the second was after Hurricane Katrina in 2005.
The IEA announcement coupled with a rise in claims for unemployment benefits drove stocks down in early trading on Thursday. As AP reported:
The number of people applying for unemployment benefits rose to 429,000 last week, much higher than economists expected and the largest rise in four weeks. Applications have stayed above 400,000 for more than two months, the latest sign that hiring has weakened from earlier this year.
“This is no longer looking like a small soft patch,” said Lawrence Creatura, who manages a stock portfolio at Federated Investors. “It’s beginning to look more like quicksand.”
Oil prices fell 5 percent after the International Energy Agency said 60 million barrels of oil would be released from reserves to make up for the loss of Libyan exports. That sent Exxon Mobil Corp., Chevron Corp. and other energy stocks sharply lower.
In contrast, airlines stand to benefit from cheaper fuel costs. Their stocks were mostly higher. United Continental Holdings Inc. gained 4 percent and JetBlue Airways Corp. 2 percent.
The Dow Jones industrial average is down 184 points, or 1.5 percent, at 11,926 in early trading.
The Standard & Poor’s 500 index is down 19 points, or 1.5 percent, at 1,267. The Nasdaq is down 37 points, or 1.4 percent, at 2,631.
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