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Home >> Business
UPDATED: 17:14, September 06, 2005
Oil prices drop sharply on IEA decision of loaning reserves
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The Paris-based International Energy Agency declared on Sept.2 night that all its 26 member countries had agreed to inject 60 million barrels of strategic oil stock into the market over 30 days to ease the tension resulting from the Katrina hurricane.

IEA Executive Director Clude Mandil said this was a preventive measure against worldwide oil shortage, not designed to bring oil prices down. It is up to each member country, he noted, to decide the ratio of crude oil and refined oil to be put into the market and IEA is not sure about the specific detail. But IEA suggested that refined oil be loaned first. He also expressed his hope of a decline of oil price which is too high now.

A statement by IEA earlier that day said all its 26 members agreed on 2 million barrels of additional oil on a daily basis over a 30-day span. It also claimed that Katrina cost the international oil market 1.5 million barrels of crude oil and 2 million barrels of refined oil every day.

The IEA also decided to make a summary on the international oil market two weeks later to assess the results of this collective action.

Crude oil prices on the New York Futures market dropped 1.9 USD to close at 67.57 USD a barrel the same day upon the announcement of IEA's decision. The London North Sea Brent Crude Oil Futures also fell 1.66 USD to close at 66.06 USD a barrel. Oil prices on these two markets hit the record high at 70.85 USD and 68.89 USD a barrel respectively on August 30.

Gasoline futures turned down by 22.53 cents and closed at 2.1837 USD a barrel after 4 days of surge. In spite of that, prices on the gasoline futures increased considerably by 18 percent this week and peaked on Sept. 1 when the price hit the highest since the futures was launched at the New York Board of Trade in 1994 and doubled that one year ago.

US Secretary of Energy Bodman also declared the US government would tap 30 million barrels of Strategic Petroleum Reserve (SPR) to make up for the crude oil shortage due to the hurricane Katrina and cool down the price. This is part of the IEA's efforts in responding to US oil supply shortage.

Bodman also said this was the government's initial response to the devastated hurricane Katrina and part of the authority's relief efforts.

The US SPR program was initiated in 1979 and the current stock has reached more than 700 million barrels, very close to its full capacity.

By People's Daily Online

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