SLB Schlumberger Ltd

In a surprise move, U.S. and its allies in the Paris-based International Energy Agency (“IEA”) – the energy-monitoring body of 28 industrialized countries – have announced the release of 60 million barrels of emergency crude supplies from government-held strategic reserves into the world market over the next 30 days.

Of the total volume, half (or 30 million barrels) will come from the U.S. Strategic Petroleum Reserve (“SPR”) – the largest release ever from the nation’s huge 727 million barrel emergency stockpile – with Europe accounting for 30% and the Pacific OECD nations supplying the remainder. 

As per the plan, IEA, which represents the bulk of the world's largest energy consuming nations, will release 2 million barrels a day starting next week and stretching over a month, mainly to alleviate the loss of crude exports created by the unrest in Libya and other oil-rich nations in the Middle East.

In particular, the U.S. and IEA officials point out that turbulence in Libya has taken off 140 million barrels from the market year-to-date, most of that being high-quality oil that is easiest to refine and convert to gasoline. This, they say, have raised prices and slowed the economic recovery in the U.S. and abroad.

The proponents of the move argue that, if successful, it could bring down the price of fuel and jolt the stalling recovery by acting as a type of economic stimulus through increased consumer spending that has seen pressure for much of this year with crude prices jumping above $110 a barrel.

The emergency crude supply release comes with the onset of the summer driving season, usually the period of peak petroleum consumption and one in which high-quality crude oil like Libya's is particularly in demand.

Additionally, the administration's action is aimed at countering the Organization of the Petroleum Exporting Countries’ (OPEC) refusal to boost its production quotas and apprehensions regarding a new surge in gas prices.  

However, some analysts are skeptical about the impact of the oil-reserve release on prices, arguing that it is most likely to be short-lived. They went on to say that the 60 million barrel drawdown amounts to less than one day of global oil demand, currently close to 87 million barrels per day.

With commercial crude supply levels in the U.S. already above the upper limit of the average for this time of the year and oil prices headed lower due to economic weakness in the world's biggest oil consumer, the proposed move will do little to benefit consumers, stressed these analysts.

But, unsurprisingly, the announcement that the consuming nations would tap emergency reserves drove down crude oil prices by nearly 5% to around $91 per barrel, a four-month low. As a result, the share prices of oil-weighted majors like ExxonMobil Corp. (XOM), Chevron Corp (CVX), and Schlumberger Ltd. (SLB) also tumbled.

 
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