Oil prices plummeted after the U.S. and other nations announced the release of 60 million barrels from strategic energy reserves in a bid to boost the global economy and stem supply shortages. Oil finally settled at $91.02, down $4.39 (5 percent) in New York trading today, a price last seen in February of this year. The decision to release oil from the Strategic Petroleum Oil Reserves clearly shocked the market. U.S stock markets were also spooked by the oil announcement. The Dow closed down 60 points but recovered from the worst of its lows as Reuters reported that Greece has reached an agreement with the EU and IMF on five-year austerity plan.
The U.S. will be releasing 30 million barrels of oil from the Strategic Petroleum Oil Reserve.
The release will be part of an multi-nation effort by the International Energy Agency to smooth out disruptions caused by the turmoil in Libya. Other member countries will be releasing an additional 30 million barrels of oil into global markets.
White House officials say the high-demand summer driving season was a factor in the decision.
John Kingston, global director of news at Platt's research service, says that with OPEC unwilling to do anything formally to increase production, "this move by the U.S. and International Energy Agency will give a jolt to the U.S. economy."
In a statement last week the International Energy Agency had warned that Libya's oil production may not return to full capacity until 2015.
"They are trying to change the psychology," says Gus Faucher, an economist with Moody's Analytics. "Lower oil prices, if they stick ,means gas prices down by about another 11 cents a gallon."
In his statement the U.S. energy secretary said that "as we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary."
The reserves have been tapped for emergency reasons only twice – after hurricane Katrina in 2005 and in 1991 after the first Gulf war.
This release of the extra oil in the global markets will likely have a negative impact on oil investors, but a positive impact on consumers.
The U.S. Chamber of Commerce, a group that has been vocal in its criticism of the Obama administration, released a statement saying that, "Our reserve is intended to address true emergencies, not politically inconvenient high prices."