Strategic reserves release eases oil prices

Member nations of the International Energy Agency have agreed to release 60 million barrels of oil from their strategic reserves over the next 30 days in an attempt to ease prices.

Prices soared in the first quarter of this year as political unrest halted oil production in Libya, but

fears of a Greek default and slowing economic data from China have pared back some of those gains this month.

Despite the recent softening in prices, the IEA said the disruption of supply from Libya had forced it to act, and it hoped its move would help nurture the "fragile global economic recovery".

"The threat of a serious market tightening, particularly for some grades of oil, poses an immediate requirement for additional oil or products to be made available to the market," the IEA said.

"The IEA collective action is intended to complement expected increases in output by producing countries to help bridge the gap until sufficient additional oil from them reaches global markets."

Strategic oil stocks are usually reserved for times of national crisis. This week's release is only the third such intervention, following similar moves during the 1991 Gulf War and in the wake of hurricane Katrina in 2005.

The amount of oil released is considered relatively trivial, as it amounts to less than one day's global consumption.

But it was seen as a major symbolic step, particularly after OPEC failed to agree on a deal to increase oil production earlier this month.

News of the release had an instant effect on oil markets, with the American benchmark crude West Texas Intermediate falling by $US4.39 a barrel to $US91.02.

Futures contracts for the European benchmark, Brent, fell by more than 6 per cent.

Both had recovered modestly yesterday evening, as investors digested the short-term nature of the solution.

Australian oil and gas companies watched their share prices suffer on the news, with Woodside Petroleum losing 20? to close at $40.20.

Santos fell 10? to $13.27, Beach Petroleum dipped 1? to 87? and Tap Oil fell 3? to 83.5?.

Alan Cadd, from petrol-focused consumer lobby group MotorMouth, said petrol prices for Australian motorists were influenced by many complex factors, but the oil releases would generally ease pressure at the bowser.

"All things being equal, it will be good news for Australian motorists," he said.

Mr Cadd said the Australian motoring sector often worked to an unofficial rule where a $US1 change in global crude oil prices translated roughly to a 1? change at the bowser.

ANZ analyst Serene Lim said the move would ease prices in the short term but could pose some risks in the longer term.

"At some point the replenishing of strategic stocks should boost demand and pressure prices," she said.

Half the 60 million barrels will be released by the US, equivalent to about 4 per cent of its strategic oil reserves.

Republican politicians in the US accused President Barack Obama of securing a politically popular solution before the American summer holidays, when oil consumption and price pressures traditionally rise.

They said eroding the strategic supplies had threatened national security, and taxpayers might have to pay more to restock.

Oil lobby groups in the US were also angry. Charles Drevna, from the National Petrochemical and Refiners Association, attacked the plan. "Releasing oil from the strategic petroleum reserve today, when gasoline prices are falling and there is no supply shortage, makes no sense and weakens our economic and national security," he said.

The Obama administration rejected suggestions the decision was politically motivated, saying the oil releases were simply about responding to "supply disruption".