The action is aimed at stabilizing global oil supplies and reducing energy prices for businesses and consumers, and by early afternoon futures contracts for West Texas intermediate crude oil were down $4.46 to $90.95 a barrel.
Of the total amount of oil to be released, about half would come from reserves in the United States, with the rest to be provided by other nations among the international agency’s 28 member states. Negotiations for the coordinated response have been going on in secret for weeks, according to a person involved in the talks. Similar unified action was taken in 1991 at the outbreak of the first Persian Gulf War.
“We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery,” said Energy Secretary Steven Chu in a statement. “As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary.”
The total amount of oil to be released — 60 million barrels over the next 30 days — is relatively trivial, representing less than a single day’s global oil consumption. But it sends a number of signals to markets and countries facing particular distress because of the supply disruption caused by unrest in Libya and elsewhere in North Africa and the Middle East.
The release of 60 million barrels amounts to about 30 days of Libyan production. It will ease American demand for Nigerian and Algerian light sweet crude, which can go to the Europeans instead. Italy in particular was dependent on Libyan crude, buying 28 percent of Libya’s 1.5 million barrels a day of exports last year, according to the I.E.A. The United States purchased just 3 percent of Libya’s exports last year.
The move also allows President Obama to say that he is acting aggressively to deal with high gasoline prices at the start of the summer driving season.
An Obama administration official said that the release of the oil was driven by concerns about supply and the potential impact on the domestic and global economies, not by politics.
“This is about ensuring that the actions producers are taking and the actions taken by the consuming nations will address the supply disruption,” the official said, insisting on anonymity to describe internal discussions among the 28 members of the International Energy Agency. “This is about addressing supply disruption and its potential impact on global economic growth, and that’s the driving factor.”
The official said that the nations involved in the action would review its effect after 30 days to decide whether additional releases are warranted.
“The Strategic Petroleum Reserve is kept precisely for this purpose,” the official said. “The United States stands ready to do more as and if necessary to deal with this issue.”
The action is also a response to the Organization of the Petroleum Exporting Countries, which failed to reach an agreement on an oil output increase at its June 8 meeting to make up for the continuing supply disruption. After the meeting, Saudi Arabia and the Persian Gulf states split from other producers and agreed to pump as much as 1.5 million more barrels of crude per day until the end of the year to avoid additional stress on the global economy.
The Dow Jones industrial average lost 165 points at the opening of trading, shortly after the announcement from Paris, but some traders said the large drop was partially a reaction to a sharp increase in weekly claims for jobless benefits in the United States and a downbeat economic forecast from the Federal Reserve on Wednesday. By early afternoon the Dow was down about 160 points.
Even as the talks on the oil reserves proceeded behind the scenes in recent weeks, prices have come down a bit at American gasoline pumps. The average price of a gallon of regular gasoline has fallen to $3.61, the AAA Daily Fuel Gauge Report said Thursday, compared with $3.83 a month ago. A year ago, the price was $2.74 a gallon.
It is unclear how much more prices could come down, if at all, with the release of the reserve oil, which is not a large amount given that worldwide oil consumption is roughly 89 million barrels a day.
Christine Hauser contributed reporting from New York, Matthew Saltmarsh contributed from Paris and Clifford Krauss contributed from Houston.
Article source: http://www.nytimes.com/2011/06/24/business/24oil.html?partner=rss&emc=rss