The International Energy Agency’s announcement Thursday that it would be releasing 60 million barrels of oil over the next 30 days in response to the conflict in Libya was met with many questions—questions so obvious that the agency anticipated them in the FAQ that it published alongside the news release on its website.
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On two of the questions (in short, “Why now?” and “Isn’t this really about prices?”), the agency simply copied and pasted the exact same sentence: “The IEA is prepared to act when there is a significant supply disruption or an imminent threat thereof.” More specifically, the IEA pointed to seasonal demand and OPEC’s decision earlier this month not to increase production to fill the Libya gap, which stood at 132 million barrels by the end of May.
IEA member countries have tapped their oil stocks only twice before: in response to Hurricane Katrina in 2005, and to Iraq’s invasion of Kuwait in 1990.
Half of the IEA’s oil release will come from the United States, which will contribute 30 million of the 727 barrels it currently holds in its Strategic Petroleum Reserve. Approximately 30 percent of the remaining oil will come from Europe, and the rest from Asia. The proportions are based on countries’ oil consumption.
U.S. Energy Secretary Steven Chu also emphasized supply in his statement on the decision, saying, “We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery.”
However, others were quick to note that 60 million barrels over 30 days is a drop in the bucket compared to worldwide oil consumption, which stands at more than 84 million barrels per day.
But if the IEA’s decision isn’t really about emergency supply, what is it about? Naturally, the first answer is prices, along with some American politics. The New York Times noted, “The move also allows President Obama to say that he is acting aggressively to deal with high gasoline prices at the start of the summer driving season.”
Still, the news wasn’t met with much enthusiasm from anyone. Perhaps the most colorful response to the drawdown came from Grist, which likened it to “giving Bubbles from The Wire $5 when he’s in the middle of one of his smack binges.” The Economist’s Schumpeter blog opined, “Overall, the best solution to a high oil price is a high oil price. Tinkering with that equation is rarely a good idea.”
And unsurprisingly, the oil industry voiced its disapproval, with the American Petroleum Institute calling Obama’s decision a “reactionary move.” Naturally, oil prices dropped more than 4 percent following the announcement.
With the world clamoring for a long-term solution to dependence on a finite resource – and with huge disagreements over what that long-term solution might be – the allure of the short-term fix indeed seems overpowering.