On rumors of impending war in the neighborhood

Oil reserves release shocks markets
By Sylvia Pfeifer and Javier Blas in London and Anna Fifield in Washington and Najmeh Bozorgmehr in Tehran

Oil prices dropped more than 7 per cent after western nations released the biggest amount of oil from their emergency strategic stocks since 1991, in a warning shot aimed at Opec, the oil producers’ cartel.

The International Energy Agency agreed to release 60m barrels of oil in the coming month to offset the daily production loss of 1.5m barrels of high quality oil from Libya, the north African country engulfed in a civil war.

The US led the release with its special petroleum reserve providing 50 per cent of the crude oil. Japan, Germany, France, Spain and Italy are providing most of the rest. The IEA said that it was in consultation with China, the world’s second-largest oil consumer, but declined to say whether Beijing would join the effort.

Brent crude prices tumbled 7.4 per cent to $105.72 a barrel after the news was released, before settling at $107.26 in late London trading. Investors sought the safety of US government debt, pushing yields on four-week Treasury bills into negative territory and yields on three-month bills to just above zero. The yield on 10-year Treasury notes fell 8 basis points to 2.91 per cent, the lowest close since December.

This is only the third time in the history of the IEA – set up in 1974 as a counterbalance to Opec after the Arab oil crisis – that there has been a release. The move has been triggered by western concerns about the impact of high crude prices on the economic recovery. …more