Oil plunges as IEA releases reserves

Oil prices plunged after the International Energy Agency decided to tap emergency reserves to make up for lost Libyan output and to give the global economy relief from high energy prices. Markets were roiled as the Paris-based IEA announced its surprise decision, only the third time in history that the 28-member group of oil-importing countries has taken such a step. The main oil contract traded in New York -- West Texas Intermediate (WTI) light, sweet crude for August delivery -- plummeted $4.39 to close at $91.02 a barrel, a one-day drop of 4.6 percent. The WTI contract hit an intraday low of $89.89 a barrel, a level not seen since February. In London, on the IntercontinentalExchange, Brent North Sea crude for August delivery tumbled $6.95 to $107.26, a six percent drop. The IEA said 60 million barrels would be taken from its members' strategic oil stocks over the next month to replace output from Libya, where a revolt against longtime leader Moamer Kadhafi has practically halted output. Libya has been in turmoil since a popular uprising against Kadhafi began in February and a coalition of NATO countries launched a campaign of air strikes against government forces. "This supply disruption has been underway for some time and its effect has become more pronounced as it has continued," the IEA said in a statement. The United States, the world's largest oil-consuming nation, took the lead in moving to draw down reserves, saying it would release 30 million barrels from its Strategic Petroleum Reserve. "The US stands ready to do more as is necessary to address this issue," a senior US official told reporters on condition of anonymity, adding that Washington would review the supply situation after one month. Tighter supplies have caused a run-up in oil prices this year, threatening the global economic recovery. A series of gloomy economic reports was already pushing down the price of oil before the IEA made its move, analysts said. "It was down even before the announcement came out," said Tom Bentz of BNP Paribas, citing the Federal Reserve's decision Wednesday to reduce its 2011 growth forecast for the US economy. "Sixty million barrels is less than one day of global demand but it's still two million barrels a day over 30 days, and that comes in addition to the increase that Saudis have promised," he added. A US trucking association applauded the IEA and the administration of US President Barack Obama for the move, saying it would help business. "High fuel costs hurt trucking companies by increasing operational costs and by reducing freight volumes," Bill Graves, head of American Trucking Associations, said in a statement. Some observers argued that the Obama administration's decision to tap the Strategic Petroleum Reserve appeared to be motivated by economic factors, rather than the strategic reasons for which the SPR was created. "It's hard to make the case that there is a strategic emergency," Jonathan Chanis, head of New Tide Asset Management and an energy expert at Columbia University, told AFP. "One would suspect that this is more about moving the markets than about a true strategic emergency," Chanis said. The SPR, created in the 1970s after the Arab oil embargo, has only undergone two presidentially authorized emergency drawdowns in its history. In 1991, then-president George H.W. Bush authorized an emergency sale of crude from the SPR to stabilize oil markets during the first Gulf War against Saddam Hussein's Iraq. In 2005, George W. Bush, authorized another drawdown after Hurricane Katrina crippled refineries along the coast of the Gulf of Mexico. The SPR's oil is contained in several underground caverns in the states of Texas and Louisiana. According to the US Department of Energy, US crude oil stocks are at 727 million barrels, a historic high.