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Blame it on Paris – oil prices plunge International Energy Agency announces release of 60 million barrels of crude, half to come from U.S. Strategic Petroleum Reserve By Wesley Loy For Petroleum News
Crude oil prices dropped sharply after the International Energy Agency announced June 23 its 28 member counties would release 2 million barrels a day of crude oil from their emergency stocks to stem further tightening of supplies amid the Libya crisis.
The Paris-based IEA said a total of 60 million barrels would be released over a one-month period. And it said another oil release might be coming.
The announcement was a bit of a surprise, as gasoline prices had been falling.
The IEA explained the release was necessary to make up for lost oil from warring Libya, to meet increased demand heading into “driving season” in the northern hemisphere, and to bridge the gap until a pledged production increase from Saudi Arabia reaches the market.
“Greater tightness in the oil market threatens to undermine the fragile global economic recovery,” the IEA said in a June 23 announcement. The oil release, it said, should ensure a “soft landing for world energy markets.”
Oil prices plunged in response to the release.
On the day of the IEA announcement, the benchmark West Texas Intermediate crude fell $4.36 a barrel, or 4.6 percent, to close at $90.65, and Alaska North Slope crude also fell by $4.36 a barrel, or 3.8 percent, to end at $109.65, according to Alaska Department of Revenue figures.
The following day, June 24, WTI gained 18 cents while ANS crude fell another $5.82 per barrel to close at $103.83.
Mixed reaction This is only the third time that IEA member countries have acted collectively for an emergency release of oil stocks. They did it previously in 2005 after Hurricane Katrina damaged offshore platforms, pipelines and refineries in the Gulf of Mexico, and in 1991 after Iraq’s invasion of Kuwait.
Of the 60 million barrels slated for release, half will come from the U.S. Strategic Petroleum Reserve, which recently has been filled to just shy of its 727-million-barrel capacity and is the world’s largest supply of emergency crude oil.
Reaction from political leaders and others to the oil release was mixed.
“I believe the Obama Administration’s decision is short-sighted and a reminder of why we need a comprehensive energy plan in this country,” said U.S. Sen. Mark Begich, D-Alaska. “If we are to tackle this problem over the long term, we need to focus on increased domestic production in addition to increasing efficiency. The fact is, developing Alaska’s oil and gas resources buys our country 100 years of energy security from countries who don’t like us.”
U.S. Sen. Jeff Bingaman, D-N.M., chairman of the Senate Energy and Natural Resources Committee: “This decision would have been more timely if made when the disruption in Libyan oil supplies first occurred. However, I hope it helps deflate speculative froth in the markets and further settles prices back to levels where most experts believe they should be.”
U.S. Sen. Lisa Murkowski, R-Alaska, ranking member on the Senate Energy and Natural Resources Committee: “It seems that the administration is tampering with the Strategic Petroleum Reserve to deflect attention from the continuing bad economic news and dodge political accountability. These reserves are not a political tool and should not be used as such.”
Alaska Gov. Sean Parnell, a Republican: “The strategic petroleum reserve that the Obama administration should focus on tapping is Alaska, which holds an estimated 40 billion barrels of conventional oil and tens of billions of barrels of unconventional oil.”
Daniel Weiss, of the nonpartisan Center for American Progress: “Selling surplus reserve oil should lower oil and gasoline prices, which will act like a tax cut for American families.”
DOE invites purchase offers In a Q&A issued with its June 23 announcement, the IEA posed a tough question to itself: Isn’t the oil release being done to counter high prices, setting a bad precedent by making the IEA a market manipulator?
The answer: “The IEA is prepared to act when there is a significant supply disruption or an imminent threat thereof. Since the Libyan crisis began, the market has focused on the potential for further tightening in both … industry stocks and OPEC spare capacity, and we are now heading into the driving season in the Northern Hemisphere, which will witness an increase in demand for motor fuels. Refiners’ demand for crude oil is also rising, as plants typically come out of seasonal maintenance and begin ramping up runs to meet peak demand. This action is not about price but rather about ensuring an adequately supplied market to protect the world economy from unnecessary damage when it is in a fragile state.”
U.S. Strategic Petroleum Reserve oil is stored in huge salt caverns along the Gulf of Mexico coastline.
“Historically, releases from the SPR have taken one of two forms, either an exchange, where oil provided in the release is then repaid within a specified time, or sales, where oil is auctioned off in a competitive bidding process,” the U.S. Energy Information Administration said.
The United States has released crude from the reserve 17 times since 1985.
The U.S. Department of Energy on June 24 put out a “notice of sale” inviting offers to purchase Strategic Petroleum Reserve crude by June 29.
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