Thursday, June 23, 2011

Strategic Oil Reserve Tapped

In another "re-election" maneuver our illustrious leader has made another ill fated move to reduce oil prices.

U.S. to Release 30 Million Barrels of Oil from Strategic Reserve

Published June 23, 2011 |

The U.S. is releasing 30 million barrels of oil from the Strategic Petroleum Reserve as part of an international effort to make up for the loss in supply from the disruption in Libya's production in the face of ongoing "kinetic military action," the Energy Department announced Thursday.

The release coincides with another 30 million barrels to be released in the coming month from other nations in coordination with the International Energy Agency.

U.S. Energy Secretary Steven Chu said the SPR is currently at a record 727 million barrels in storage.

He said the situation in Libya -- which the U.S. began bombing in March, but which has been under NATO control since May -- has caused a loss of roughly 1.5 million barrels of oil per day -- particularly light, sweet crude -- from global markets.

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

The IEA, a 28-member nation organization created to create a collective response to major disruptions in oil supply, said the coming release of oil inventory is the third time the agency has taken such action.

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

The IEA said that the percentage distribution of stocks from each country is based on the proportionate share of consumption. As a result, the U.S. is releasing 50 percent of the total while European countries release about 30 percent and Asian countries provide the remaining 20 percent.

The IEA also said that even though the crisis in Libya began in February, tightening of supply by OPEC and recent European refinery outages linked to "seasonal maintenance work" along with summer demand in the Northern Hemisphere "represents an imminent risk." Chu noted that U.S. demand is at its highest in the summer driving months of July and August.

The U.S. Strategic Petroleum Reserve, created in 1973-74 after the Arab oil shock, is designed as an emergency reserve in case of a severe disruption in oil supply. The U.S. has sold oil reserves three times -- after Hurricane Katrina in 2005, after the Persian Gulf War in 1991 and as a deficit reduction measure in 1996-1997.

It has also been tapped several times for short-term loans to oil companies suffering disruptions from natural disasters, refinery problems and accidents.

But the release causes unexpected price changes in the market, and Wall Street took immediate notice. Oil had already been falling from $115 per barrel a month ago to $94 per barrel on Wednesday.

On Thursday, oil prices fell 4 percent almost immediately and energy stocks like Exxon Mobil Corp. sharply lower. The Dow Jones industrial average also plummeted 157 points, or 1.3 percent, in early trading.

However, Rep. Ed Markey, D-Mass., who had introduced legislation earlier this year ordering the administration to pull 30 million barrels out of the SPR said the release will have "a huge effect on the everyday lives of American families."

"With our economy teetering on the brink of a double-dip recession, and American families still struggling during peak driving season, this is the one tool America has at her disposal to immediately help drive down prices at the pump," said Markey, ranking member of the House Natural Resources Committee.

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