The International Energy Agency (IEA), the "autonomous" intergovernmental organization dedicated to responding to physical disruptions in the oil markets, unexpectedly announced today that it would be releasing 60 million barrels of crude over 30 days to make up for the loss of supply of Libyan light sweet crude. This led to a 4.6% decrease in NYMEX crude futures and 6% drop in Brent. Gasoline also fell 4/6% while distillate declined 6%. The market is generally wary of non-commercial interference and the lack of prior notification is causing unease among traders.
The market unease is that such interference normally leads to greater volatility and this move is less about bolstering supply which is at all time highs in the U.S. but more about the politics of gasoline prices. Gasoline prices were approaching $4 as a national average and this would leave an indelible mark on the minds of U.S. voters already struggling with food inflation caused by quantitative easing. People believe gasoline price increases at the pump and food price escalation at the check stand no matter what economists say about the low growth of the consumer price index.
The U.S. share of this release is 30 million barrels. The fact that the dollar rose while the euro fell today also helped to push prices down. The bad economic news has kept crude prices low this month as unemployment seems inflexibly high and housing starts are intractably low. When Fed Chairman Bernanke announced that he was clueless about the economy, there was no longer much optimism about the economy.
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