IEA's 60 million barrels a short-term feel-good

The decision by 28 International Energy Agency (IEA) member countries to release 60 million barrels of oil in the coming month to compensate for supply disruptions caused by the conflict in Libya has had an immediate effect on crude’s trading price. However, don’t look for it to result in any meaningful long-term benefits to energy security.

While the oil disruption began this past February as street protests in Libya morphed into civil war, its effect has become more pronounced as it has continued, according to the IEA, and the normal summertime increase in refiner demand is expected to exacerbate the shortfall further. The agency said this greater tightness in the oil market threatens to undermine the fragile global economic recovery.

Over an initial period of 30 days, participating IEA member countries plan to make 2 million barrels of oil per day available from their emergency stocks.

This is just the third time in the agency’s history that member countries have jointly agreed to release stocks.

“I expect this action will contribute to well-supplied markets and to ensuring a soft landing for the world economy,” said IEA executive director Nobuo Tanaka.

Within 30 days, the IEA Governing Board will reassess the oil market, review the impact of the coordinated action and decide on possible future steps.

Today’s announcement was followed by a steep drop in the trading price of crude oil. However, the move was criticized on many fronts.

OPEC, of course, was not pleased. The MarketWatch blog dismissed the benefit as “half an Apple iPad” for US consumers, while the national Petrochemical and Refiners Association derided the US’ contribution of 30 million barrels — a full half of the total — as a “strategic political reserve to boost the popularity of elected officials.”

Looking strictly at the numbers, the release of 60 million additional barrels of oil over 30 days is, at best, the weakest of salves for the economy, which globally last year consumed more than 87 million barrel a day. It’s a short-term feel-good when long term solutions are what’s needed for energy — and economic — security.