US and IEA to release oil stockpiles

The United States and 27 other nations that depend on oil imports are to release and sell 60 million barrels of crude from emergency stocks in an effort to ease the strain of high oil prices on the global economy.

The release by the International Energy Agency (IEA), covers only what the world uses roughly every 16 hours, but was enough to send oil prices considerably lower.

In addition to helping the struggling economies of the US and Europe, analysts said the move was meant as a rebuke to the Organisation of Petroleum Exporting Countries (OPEC), which has refused to increase oil production to bring down prices.

The move will be the largest sale of crude ever from world strategic reserves and only the third since the IEA was formed in 1974 after the Arab oil embargo.

The IEA released oil in 2005 after Hurricane Katrina and in 1990 and 1991 after Iraq invaded Kuwait.

The timing of the release brought criticism from business groups and Republican politicians, who accused US President Barack Obama of playing politics with the country’s oil reserves which are intended to address emergencies.

Speaking to Al Jazeera, US congressman Kevin McCarthy said the move was “pure politics as there were other points in his presidency when the emergency was higher and the price was higher”.

Libya uprising

The amount of oil to be released, two million barrels per day, represents 2.2 per cent of daily global oil demand.

The 60 million barrels to be released over the span of a month is less than one day’s demand, about 89 million barrels. Half the oil will come from reserves in the US.

Refiners who turn crude into gasoline will be able to bid on the extra oil and have it shipped to them from the salt caverns along the Gulf Coast where it is stored.

The IEA said high oil demand and shortfalls of oil production caused by unrest in the Middle East and North Africa threatened to “undermine the fragile global economic recovery”.

The uprising in Libya has taken 1.5 million barrels of oil per day off of the market – half a million barrels less than will be released each day by the IEA for 30 days.

The price of oil rose to nearly $114 per barrel in at the end of April, the highest since the summer of 2008, has fallen 20 per cent since then to about $91 a barrel on Thursday.

Analysts questioned how much relief the move would provide the economy, and for how long.

Andrew Lipow, president of petroleum market consulting firm Lipow Oil Associates, said the timing of the announcement, a day after Federal Reserve chairman Ben Bernanke delivered a negative outlook on the economy, suggests that industrialised countries are grasping for solutions.

He said Americans should expect the price of gasoline to fall, but not dramatically, in coming weeks.

OPEC split

Worldwide oil demand is at record levels because the recovering economies of the West and the surging economies of Asia are burning more gasoline, diesel and jet fuel.

OPEC resolves not to raise output

The unrest in the Middle East this spring cut into supply. Those two factors drove prices higher, raising costs for shippers, travellers and commuters and leaving people less money to spend on clothes, entertainment and travel.

The US imports a total of about 11 million barrels of oil a day and consumes about 19 million barrels. 

The IEA has left open the possibility that it could continue the program after a month.

The IEA’s move comes two weeks after OPEC, decided during a tense meeting not to increaseoil production to meet rising demand. OPEC is made up primarily of Middle Eastern and North African nations.

OPEC countries are divided over whether to increase supply.

Iran and Venezuela want to keep production stable in hopes of keeping prices – and revenue – high.

Saudi Arabia wants to increase production, fearing that high oil prices will hurt the global economy and reduce oil demand over the long term.

‘Unforgettable message’

Kevin Book, an analyst at Clearview Energy Partners, said the move was the first time the IEA has used its reserves as a weapon “to send an unforgettable message to OPEC”.

The reserves, he said, have always acted as a shield. “Now we are using it to bludgeon prices globally. This is the first time we’ve used our shield as a club,” Book said.

IEA members are required to hold in reserve the equivalent of what they would import in 90 days, though countries collectively now hold 146 days’ supply.

The US stocks, called the Strategic Petroleum Reserve, hold 727 million barrels. The reserve has never been fuller.

It held 707 million barrels before the US last tapped the reserve in 2008 in response to supply disruptions caused by Hurricanes Gustav and Ike.

The IEA decision will free about 30 million barrels in the US. Europe will release 18 million barrels and industrialised countries in Asia 12 million.

For US refiners, bidding for the oil now held in reserve will mean having to import less from abroad.

The one million barrels per day to be released is about 20 per cent of what refiners on the Gulf Coast, where the oil will go, import.