Oil plunges as IEA releases reserves
2011-06-24 15:53:38
Oil plunged on Thursday 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.
The main oil contract traded in New York - West Texas Intermediate (WTI) light, sweet crude for August delivery - fell $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 fell $6.95 to $107.26.
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 long-time leader Muammar Gaddafi has practically halted output.
It was only the third time the 28-member group, created in the wake of the 1970s Arab oil embargo, has taken such a step.
The United States, the world's largest oil-consuming nation, took the lead, saying it would would release 30 million barrels from its Strategic Petroleum Reserve.
Tighter supplies have caused a run-up in oil prices since the beginning of the year, threatening the global economic recovery.
A series of gloomy economic reports was already pushing down the price of oil before the Paris-based IEA made its surprise move, analysts said.
"It was down even before the announcement came out," said Tom Bentz of BNP Paribas, citing the Federal Reserve's decision on Wednesday to lower 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.
"It's oil that we didn't see just two weeks ago," Bentz said.
Market participants expressed surprise at the IEA's move, which caused a sharp reversal in oil prices after they had rallied on Wednesday.
"The IEA totally surprised the oil market today and shocked investors after deciding to supply... 60 million barrels of oil in an attempt to drive crude oil prices lower," said Sucden analyst Myrto Sokou.
"It was very much unexpected and following Fed chairman Ben Bernanke's comments about a weaker US economic outlook, prompted investors into a heavy sell-off," Sokou said.