Emergency oil reserves released

barrel of oil Pictures, Images and Photos The IEA (International Energy Agency surprised the world yesterday by announcing that they will release 2 million barrels of oil every day for one month, a total of 60 million barrels of oil released into the market. Typically, this only occurs when there are serious supply disruptions and this is only the 3rd time in the agency’s history that they have done it. The Agency is not run by the U.S. or any other country but, it is independent and has 28 member nations, the U.S., Canada and much of Europe are part of it.

Their reasoning behind this news making decision was that the continued supply stoppage from Libya (due to the fighting there) combined with the seasonal demand increase for oil during summer months may lead to a problem. Although Saudi Arabia has already said they will produce extra oil to make up the difference, the agency believes that it will take too long for them to get that extra oil in to the market. Also, the Saudi oil is not the exact same type as the Libyan oil which is more needed. The agency will release this type of oil from its strategic reserves and they hope that this will bring down the price of the commodity or at least keep it from going much higher.

An under the radar result that this key decision may have is that it could take some of the speculators out of the oil market. As I have said for months now, speculation is the biggest reason for the jump in oil prices. If the speculators see that the IEA is not hesitant to tap their strategic reserves, then it will make the oil market less risky. This is the opposite of what speculators want in an investment. On the down side, we don’t know how Saudi Arabia will react to this decision. They obviously did not like it because it somewhat takes their control of the oil market away. Hopefully they will still produce that extra oil because the world needs it. This story may very well develop further and I will follow up if the story merits it.