June 23rd, 2011
06:58 PM GMT
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(CNN) – A surprise attack from an unlikely source sent oil prices reeling Thursday.

The International Energy Agency, the Paris based research arm of 28 industrialised countries, held an emergency press conference to announce that its members would release 60 million barrels onto the market – allocating two million barrels a day for a month.  Half of the total will be coming from the U.S. Strategic Petroleum Reserve. 

It is only the third time the IEA tapped reserves; the first was in 1991 during the Gulf War, then again in 2005 when Hurricane Katrina wiped out some production in the Gulf of Mexico.

This move triggered memories of G-7 currency interventions in the mid-1980s, the fabled Plaza and Louvre accords, when collective action by central banks was taken to either raise or lower the U.S. dollar.

Some market purists were crying foul since governments decided to play an active role to sway prices.  But the energy market, with members of the OPEC cartel controlling about 40 percent of production, certainly is not what one would call a free market.

The IEA’s emergency move can be linked back to the OPEC meeting in Vienna earlier this month.  The 12 members left without agreeing to raise their production quota of 24.84 million barrels a day.  In sum, the price hawks – led by Iran and Venezuela – did not agree with OPEC’s swing producer Saudi Arabia, along with the UAE and Kuwait, on the need to raise production.

On the eve of that OPEC gathering, the IEA said that oil above $100 a barrel would undermine growth in the second half of this year.  Last week, at the St. Petersburg International Economic Forum, I asked the IEA’s Executive Director Nobuo Tanaka whether that strategy of leaning on OPEC backfired.  He said the organization was willing to do its part if others could not raise production; now we know what he was referring to.

While this joint strike attack brought prices down about four dollars a barrel, it will be up to those who hold the spare capacity to continue a downward trend in prices.  The IEA says OPEC members have just over four million barrels of extra production they could bring to market – three-fourths of that in Saudi Arabia with the balance shared by the UAE and Kuwait. 

Saudi Arabia, through a leak to the Middle East newspaper Al Hayat last week, said it would add another million barrels of production in July – ignoring OPEC’s call to leave production where it is.

This is a clever and no doubt coordinated one-two punch from the IEA and U.S. ally Saudi Arabia – but it may not be a knock out punch against those wanting to keep oil above the century mark.

soundoff (14 Responses)
  1. Tom

    Unfortunately it won't last very long. 2Mil BBLs a day for a month is not going to affect the long-term rise in the price of crude oil. Also, one must keep in mind that, here in the U.S., building of new refineries has, for all practical economic purposes, been outlawed or made economically ruinous so there isn't going to be any additional refining capacity brought online in the U.S. and we're already at or near the refining capacity limit. The new refineries are being built elsewhere, along with the jobs that they produce. How wonderful.

    June 23, 2011 at 7:21 pm |
  2. poopoo

    Take the speculators OUT of the market!

    June 23, 2011 at 7:43 pm |
  3. Michael

    That's one ripped trader 0.o

    June 24, 2011 at 1:11 am |
  4. emmanuel Rosenstingl

    Capitalism has resources and brains

    June 24, 2011 at 1:38 am |
  5. get off of oil NOW

    we have alternative sources of fuel. USE THEM. get funding the openly terrorist countries that hate us and use our own money against us.
    aside from that, screw the free market system and start putting CAPS on fuel prices. This will force them to quit hyperinflating these prices and invest in other bullsh*t.

    June 24, 2011 at 4:51 am |
  6. suzy diamond

    WHY didn't the President do this months ago? We've been paying hundreds of $$$ a month for gas! He said he did it because it's hurting the economy...NO $hit! No one has money for anything else after they fill up their tank. How about he did it because it's ELECTION TIME and people are pissed and FED UP. What happened to the so-called "investigation" of WHY gas prices are so high? I'll tell you.....because it was a lot of BS and everyone KNEW IT! SHAME ON YOU MR PRESIDENT! It hurt us filling our cars and buying food and services! THANKS MR PRESIDENT! FOR NOTHING!

    June 24, 2011 at 5:08 am |
  7. Jarhead

    Well done Mr. President. After your decision on troop withdrawal this is the kind of decision we expect from our leader. Unfortunately, there are hard core anti Obama rabid bigots who are ready to sacrifice the interest of the US to satisfy their bloody thirst for your demise.

    June 24, 2011 at 7:11 am |
  8. richbenj santiago

    I agree with you jarhead....one two punch by Obama deserves accolades and not criticisms....

    June 24, 2011 at 11:53 am |
  9. James

    They have scramjets aircraft using HHO (Hydrogen/oxygen) to travel at speeds of 20 Machs. The space shuttle does not use petroleum, instead it uses Hydrogen/Oxygen to leave the earths gravity. If HHO is so bloody powerful (and clean – no carbon emittions – only water vapor) – then how come it cannot power our cars and industry?!

    June 24, 2011 at 12:24 pm |
  10. Wulfbait

    This answer is for James...the reason Hydrogen is not used as a fuel for cars is because of these problems: The Hydrogen (H) has to be stored under great preasure to keep it in a liguid state. Keeping it liquid is the only way to carry enough to power a car more than a few miles. It also has to be kept at temperatures just above absolute zero. Therefore the tank to hold the H in a car has to be very large and very strong. It has to be insulated very well to keep the temp down. It has to be strong to keep the pressure it has to hold and it has to be safe in the case if a crash. You really dont want H to be spewing out of a tank in a car crash. Think of the Hindenburg...But lets say they can build a tank to do all of the necessary things to hold the H in a car...here is the biggest problem H faces as a fuel: as the tank heats up, like when a car sits in the sun for a few hours, the pressure inside the tank rises. Since the tank can only hold so much pressure, (everything has limits) the H has to be released to lower the pressure. So let's say you fill the H tank in your car on Monday, and then don't drive it until Thursday for some reason. You may find your tank almost empty on Thursday even though you have not driven the car. The H had been released because the tank had to vent it to kppe the pressure down.
    BMW ran into this problem eventhough they really had worked out all the tank strength issues. They canned the project because the venting issue can not be corrected. Who wants to pay for fuel that they can not use? It's amatter of physics. This will criple ant efforts to use H as a fuel. Sorry

    June 24, 2011 at 2:48 pm |
  11. matt

    Suzy: he didn't do it months ago because oil was at its peak. He released the oil while the market was at a downward trend to make it drop further. I suppose you would know that if you actually understood some of the factors involved. But why bother when you can just slam the President over your very scientific observations, such as market fluctuations are due to "BS." Way to go, genius.

    June 24, 2011 at 2:50 pm |
  12. Khoo Boo Boon

    At a first glance 60 million barrels may be small and may not last more than a month – with two million barrels to be released daily, but its impact on speculators will certainly be very significant. Putting a 'squeeze' on speculators will lead to lower prices as speculators will be forced to unwind their long positions. What is important is that once these speculators are taken out, the price of oil will reflect market fundamental going forward.

    Manila, Philippines

    June 24, 2011 at 3:48 pm |
  13. mercenary76

    As usual Osama did something , just a bit late . The criminals that have been driving up the prices of oil are still running loose though and not punished for the damage to America .

    June 24, 2011 at 4:52 pm |

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