Industry reels at IEA release of oil from Strategic Petroleum Reserve

Thursday, the International Energy Agency (IEA) revealed that the 28 member-country group is planning to release 60 million barrels of oil from the Strategic Petroleum Reserve over the month of July.

The US will release 30 million barrels, while European-member countries will provide 20 million, and Asian-member countries will offer 10 million barrels from their emergency supplies.

"Today, for the third time in the history of the International Energy Agency, our member countries have decided to release stocks," IEA Executive Director Nobuo Tanaka said. "I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy."

On the other hand, OPEC decided to keep oil production the same at its recent meeting.

When oil prices were at their recent high a few months ago, the Obama administration hinted that a release from the Strategic Petroleum Reserve may be the answer to bring down gasoline prices for American families.

Nonetheless, today's announcement comes as a surprise to many, after oil prices have drastically dropped on the NYMEX and gasoline prices are down across the country. Why release oil supplies now?

The IEA pointed to the disrupted oil supply in Libya as the reason for the release of oil from emergency coffers, although the civil unrest in the North African country has been going on for months.

Additionally, the group said that it would decide later if it would continue adding oil to the market.

Various energy  industry veterans have expressed concern about the IEA's move.

"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," said Charles Drevna, president of the NPRA. "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. 

"This action today will do nothing to benefit consumers. Instead, it leaves our nation vulnerable if hurricanes, other natural disasters or a foreign crisis causes a real supply shortage. These are the types of emergencies the Strategic Petroleum Reserve was created to protect against.

"Instead of releasing 30 million barrels of oil from our emergency supply when there is no emergency, our leaders should be drawing up plans to lift the roadblocks preventing our nation from utilizing the billions of barrels of oil and natural gas reserves right here in America. This would produce more energy, more jobs and economic prosperity. No other nation puts so many limits on the use of its own natural resources to benefit its own people." ..................

"The bottom line is this -- it's hard to believe that the Administration would rather tap into our emergency supply than support legislation to produce and develop North American supplies, which will create American jobs," said US House Energy and Commerce Committee Chairman Congressman Fred Upton (R-MI).

"The Strategic Petroleum Reserve was designed for energy emergencies, not political convenience. Releasing our reserves to calm the market is emblematic of an Administration whose energy policy is irrational and counter-productive. Ironically, 30 million barrels – the amount the Administration plans to deplete our emergency reserves – is the exact amount of oil we could produce in just one month from resources in Alaska's Outer Continental Shelf if only the EPA would stop blocking exploration. And we could exceed that production by finally giving a green light to the Keystone XL pipeline from our ally Canada, which could bring online the capacity for 1.3 million barrels per day."
..................

"The Obama Administration's decision to release oil from the Strategic Petroleum Reserve is ill-advised and not the signal the markets need," said Karen Harbert, president of the US Chamber of Commerce Energy Institute.

"Unrest in the Middle East is likely to continue for quite some time, so a temporary increase in supply is not a substitute for a long term fix. Our reserve is intended to address true emergencies, not politically inconvenient high prices. Rather than dabbling around the edges, the Administration should take steps to increase domestic production of oil -- on and offshore, like the bill the House passed last night. With US crude oil production expected to decrease by 90 million barrels in the next year, the Administration should instead focus on increasing domestic production to improve our energy security, reduce our dependence on foreign oil, and create thousands of jobs."
.......................

"This decision would have been more timely if made when the disruption in Libyan oil supplies first occurred," said Senator Jeff Bingaman (D-NM), chairman of the Committee on Energy & Natural Resources. "However, I hope it helps deflate speculative froth in the markets and further settles prices back to levels where most experts believe they should be."


..............................

Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.