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Oil release a remedy for price spikes?
by Staff Writers
Washington (UPI) Jun 24, 2011

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A decision by the United States to release millions of barrels of oil from its strategic reserves in coordination with the International Energy Agency could signal a new era in oil pricing, experts say.

Of the 60 million barrels of oil to be released, the United States will release 30 million barrels from its Strategic Petroleum Reserve, Energy Secretary Steven Chu said Thursday.

"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," Chu said in a statement. "As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary."

Javier Blas, commodities editor of the Financial Times, said the move could mean that the IEA will play a greater interventionist role than previously, thus reducing the possibility of further oil price spikes, such as the one triggered by unrest in Libya.

At its June 8 meeting, the Organization of the Petroleum Exporting Countries failed to reach an agreement to increase oil output to compensate for continuing supply disruptions.

That impasse was a "trailing indicator of a primary catalyst" for the IEA's announcement, representing long-term challenges for Western oil buyers facing a divided OPEC, Clearview energy analysts Kevin Book and F. Chase Hutto said, Platts reports.

Robert McNally, president of consulting firm Rapidan Group in Washington and the top White House oil adviser from 2001 to 2003, told the Times the IEA's move gives the message to the market that "if OPEC cannot put a ceiling on the oil price, we will do it."

The move is the third such release since the IEA was formed in 1974. The IEA last released the reserve in 2005, after Hurricane Katrina disrupted oil supplies from the Gulf Coast region. The first one occurred in 1991, on the first day of the military campaign to remove Iraqi forces from occupied Kuwait.

But critics questioned the Obama administration's motive behind this release.

Randa Fahmy Hudome, an energy consultant in Washington who is a former Bush administration energy official, noting SPR sales are usually reserved for an emergency situation, said the Obama administration's move appears to be motivated by economic factors.

"Gas prices are high, yes, but they're not so unbearably high that this is the only thing affecting the economy today. The only thing I can assume is that this was done for a political need to satisfy consumers," she was quoted as saying by the Houston Chronicle.

"The Strategic Petroleum Reserve is an emergency lifeline to protect our nation against critical shortages in our oil supply and shouldn't be used as a 'Strategic Political Reserve' to boost the popularity of elected officials," Charles T. Drevna, president of the National Petrochemical and Refiners Association, said in a statement.

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