Oil plunged nearly 5 per cent Thursday after the International Energy Agency said it will release 60 million barrels of oil from its reserves to make up for a loss of Libyan exports in global oil markets. The IEA, which includes the U.S., will release 2 million barrels per day over the next 30 days. Half of that will come from U.S. Strategic Petroleum Reserve, which currently holds 727 million barrels in underground caverns along the Gulf Coast.
The IEA said the oil will help offset the loss of about 132 million barrels of high-quality Libyan crude, cut off by continuing unrest there.
"Although there are huge uncertainties, analysts generally agree that Libyan supplies will largely remain off the market for the rest of 2011," the agency said. Benchmark West Texas Intermediate for August delivery lost $4.59, or 4.8 per cent, at $90.82 per barrel in midmorning trading on the New York Mercantile Exchange.
Brent crude, which is used to price many international varieties, lost $6.78, or 5.9 per cent, at $107.39 per barrel on the ICE Futures exchange.
The IEA announcement followed further indications of a slow economic recovery in the U.S. Federal Reserve Chairman Ben Bernanke on Wednesday warned that some problems _ in the financial and housing sectors _ would linger into next year. And on Thursday the Labor Department reported an increase in applications for unemployment benefits.
The 28-member IEA said that the loss of Libya's 1.5 million barrels of daily exports has squeezed oil supplies to the point that it now threatens to "undermine the fragile global economic recovery." Analysts said the IEA's move will likely depress world oil prices temporarily, but it's unclear how long that will last. "It creates an immediate glut," said Michael Lynch, president of Strategic Energy and amp; Economic Research. "But they're not solving the problem." Lynch said the IEA is dumping oil onto the market at a time when supplies are still high. Supplies, which were expected to shrink in the second half of the year, will probably stay at healthy levels for an additional three months or so, Lynch said.
If oil demand continues to rise to historic levels this year, oil suppliers will continue to have trouble keeping up, he said.
In other Nymex trading, heating oil fell 14 cents, or 4.8 per cent, to $2.8266 per gallon and gasoline futures lost 14 cents at $2.7891 per gallon. Natural gas gave up 12 cents at $4.197 per 1,000 cubic feet.