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U.S. To Tap Strategic Petrolium Reserve In Global Effort To Increase Oil Supply

A somewhat surprising announcement this morning that the United States and 28 other countries are going to engage in a joint effort to increase the world supply of oil:\

The United States will lead an international effort to release 60 million barrels of petroleum reserves to world markets, replacing some of the oil production lost because of the conflict in Libya, the International Energy Agency announced in Paris on Thursday.

The action is aimed at reducing energy prices for businesses and consumers, and in early trading, futures contracts for West Texas intermediate crude oil were down $5 a barrel to around $90.

Of the total amount of oil to be released, about half would come from reserves in the United States, with the rest to be provided by other nations among the international agency’s 28 member states. Negotiations for the coordinated response have been going on in secret for weeks, according to a person involved in the talks. Similar unified action was taken in 1991 at the outbreak of the first Persian Gulf War.

“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,” said Energy Secretary Steven Chu in a statement. “As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary.”

The Dow Jones industrial average lost 165 points at the opening of trading, shortly after the announcement from Paris, but some traders said the large drop was partially a reaction to a sharp increase in weekly claims for jobless benefits in the United States.

Even as the talks proceeded behind the scenes, prices have come down a bit at American gasoline pumps. The average price of a gallon of regular gasoline has fallen to $3.61, the AAA Daily Fuel Gauge Report said Thursday, compared with $3.83 a month ago. A year ago, the price was $2.74 a gallon.

It is unclear how much more prices could come down, if at all, with the release of the reserve oil, which is not a large amount given worldwide consumption levels.

The oil to be released is light sweet crude, similar to the type that Libya produces. The war in Libya since mid-March has been largely responsible for keeping about 140 million barrels of oil from international markets, according to government estimates.

Given the fact that oil and gas prices seem to have mostly stabilized over the past month, and in fact decreased at least somewhat, it’s puzzling that this would be done now.  The market seems to have adjusted to the supply disruptions from Libya quite well, and it’s unlikely that this one time release of less oil that the world consumes in a day will have that much of an impact on prices in the U.S. or elsewhere.

 

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Neil Hudelson says:

    I’m beginning to be confused about what that word ‘strategic’ means.

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  2. rjs says:

    strategic means we’re facing a week quarter..

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