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Global Oil Reserves Tapped in Effort to Cut Cost at Pump

June 23, 2011

nytimes

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 $4.50 a barrel to around $91.

The United States will release half of the total amount from the Strategic Petroleum Reserve, with the rest of the oil 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. 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.

The 727-million-barrel Strategic Petroleum Reserve was established after the 1973-1974 Arab oil embargo to provide presidents with an emergency response to similar disruptions in commercial supplies that threaten the economy and national security. According to the Department of Energy, it is the world’s largest stockpile of government-owned emergency crude oil.

In addition to the 1991 release, in September 2005 President George W. Bush ordered a drawdown after Hurricane Katrina disrupted oil supplies from the Gulf Coast region. The 1991 release was about 17 million barrels; the 2005 hurricane release was 21 million barrels.

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