The Rising Influence of Rising Affluence

[DewDiligence]

60Mbbl Will Be Released from Emergency Stocks—Half from US

[It’s notable, IMO, that IEA cites demand from China as an impetus for taking this action.]

http://online.wsj.com/article/SB10001424052702303339904576403480626606792.html

›JUNE 23, 2011, 12:26 P.M. ET
By JAMES HERRON And JARED A. FAVOLE

The International Energy Agency will release 60 million barrels of oil from emergency stocks in the next 30 days to alleviate problems caused by the shutdown of Libyan crude exports by the civil conflict, a move that sent oil prices lower.

The unexpected announcement contributed to a fall in crude-oil futures, with the Nymex contract for August delivery down 5.6% to $90.07 a barrel in midmorning trade.

As part of the plan, the U.S. will release 30 million barrels from its Strategic Petroleum Reserves.

"We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery," Energy Secretary Steven Chu said in a statement.

The administration has faced growing pressure in recent months to release oil from the reserves as a shortfall in supplies has pushed gasoline prices upward. Until now, the administration had declined to tap into the reserves, saying the stored oil should only be released during major supply disruptions.

The reserves now hold 727 million barrels of oil, a historic high, according to the DOE. The average price of regular gasoline is $3.61 a gallon in the U.S.

The IEA said its two million-barrel-a-day stock release, "is intended to complement expected increases in output by these producing countries, to help bridge the gap until sufficient additional oil from them reaches global markets."

The move is intended to address rising demand for oil in the summer season due to increased gasoline use in the U.S. and rising demand in China. [See comment in prologue of this post.] Oil prices have retreated in recent days, but consumers are concerned about a supply crunch later this summer.

"I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy," said IEA Executive Director Nobuo Tanaka in a statement.

This is only the third occasion in its history that the IEA has released oil from its emergency stocks. The other releases came following the first Gulf War and Hurricane Katrina.‹