Speculation over an emergency release of U.S. oil reserves has grown, but the market may not even need one to lower prices.
Just talk of a potential Strategic Petroleum Reserve release was blamed for the dramatic price drop late in Monday’s session, which saw oil fall more than $4 a barrel in about 20 minutes before rebounding to close 2.4% lower. On Tuesday, oil for October delivery CLV2 -0.77% was trading at $96.21 a barrel on the New York Mercantile Exchange, down 41 cents.
“Oil prices are likely to fall back without the need for the release of emergency reserves as optimism about the impact of global policy stimulus fades and demand remains weak,” said Julian Jessop, head of commodities research at Capital Economics.
If prices don’t decline, the U.S. would probably release reserves outside the framework of the International Energy Agency, he said in a note.
In June of 2011, the IEA coordinated a release of 60 million barrels of oil because of lost production Libya, but this time around the production decline due to sanctions on Iran has been more than offset by increased supply from Saudi Arabia and other Gulf states, he said.
A release is not imminent or likely to be necessary any time soon, said Jessop, but “some form of action by the U.S. and its allies is certainly a possibility and the release of official stocks is one trigger that might bring prices down more quickly.”
