Brent crude rebounded towards $109 today from its lowest settlement since February as traders gauged how much supply would reach the market from an IEA-coordinated release of emergency oil stockpiles.
Prices tumbled more than 6 per cent yesterday, when the International Energy Agency announced the release. Brent rebounded $1.28 today to $108.54 a barrel, but was still headed for a weekly drop of about 4 percent. US crude climbed $1.21 to $92.23.
The use of emergency stockpiles four months into the disruption of Libyan exports surprised markets and highlighted the deepening concern among Oecd nations over the damage of high energy costs to a worsening global economy.
JP Morgan cut its Brent forecast for the third quarter to $100 a barrel from $130, but warned that "if consuming countries find little appetite for their petroleum release, or find it is having too large an effect on prices, they can limit the volumes sold."
The IEA said it would make available 60 million barrels of government-held stocks in the global market, immediately increasing world supply by some 2.5 per cent for the next month, and sending prices spiralling down, with US crude erasing all of the year's gains.
The move, which marked only the third time that the IEA has used the release mechanism, shocked traders who had been expecting top exporter Saudi Arabia's decision to unilaterally pump more oil into the market would be given more time after Opec turned down a unified effort.
Venezuela sees no long-term impact on oil prices from the IEA stockpile release, saying it was a political decision linked to elections in the United States and Europe.
The IEA release may prompt Saudi Arabia to pump less crude than it would have originally by the end of the year, according to Barclays Capital, tightening up balances into 2012.
Other analysts also mentioned the possibility that the replenishment of emergency stockpiles would tighten markets later in the year, but supplies are much higher than required by the IEA, so there is no impending need to refill tanks.
At 1.6 billion barrels, total emergency oil stockpiles held by IEA nations amount to the equivalent of 146 days of net imports, compared to the Agency's requirement of 90 days.
Goldman Sachs, whose oil price forecasts are closely watched by markets, said the release of the IEA oil could knock down prices of Brent crude by $10 to $12 a barrel.
Oil markets were already down sharply yesterday ahead of news of the release, due to worries over global fuel demand following higher-than-expected US jobless claims, forecasts of lower US growth from the Federal Reserve and evidence of a slowdown in Chinese manufacturing.
The IEA release, at 2 million barrels per day (bpd) over the next 30 days, is more than the daily loss of Libya's 1.2 million bpd exports and comes despite a broad view that the world is not now short of crude.
The release includes 30 million barrels of light, sweet crude from the US Strategic Petroleum Reserve - the same quality that markets have lost due to the Libya disruption.
Against that backdrop, analysts said the use of the reserves now - unlike the previous two releases, which immediately followed the start of the first Gulf War and Hurricane Katrina - signalled the IEA may have been more concerned with tempering prices to aid a faltering economic recovery.
Reuters
