LONDON (AFP) – World oil prices sank on Friday, extending the previous day’s dizzying plunge after the International Energy Agency decided to tap emergency crude reserves to make up for lost Libyan supplies.
New York’s main contract, West Texas Intermediate for delivery in August, eased ten cents to $90.92 a barrel after plummeting $4.39 or 4.6 percent on Thursday.
In London afternoon trade on Friday, Brent North Sea crude for August fell $1.31 to $105.95, one day after plunging by $6.95, or 6.0 percent in value.
The IEA sparked a steep sell-off when it announced its decision to release 60 million barrels of crude from strategic oil stocks over the next month, as part of efforts to give the global economy relief from sky-high energy costs.
Prior to Thursday’s announcement, the market was already buckling under the weight of a stronger dollar, spreading global economic gloom and contagion fears arising from the Greek-eurozone debt crisis.
The shock IEA move is intended to replace output from Libya, where a revolt against longtime leader Moamer Kadhafi has practically halted output.
However, some analysts said Thursday’s heavy price falls were overdone in light of the market outlook.
“Oil prices have probably overreacted to the IEA’s decision to release emergency stockpiles,” Capital Economics analyst Julian Jessop said.
“Looking past the recent volatility, the medium-term prospects for oil prices continue to depend primarily on the outlook for demand, geopolitical risks in the Middle East and developments in financial markets more generally.”
The IEA, the energy arm of the 34-nation Organisation for Economic Cooperation and Development, has repeatedly called on the OPEC oil cartel to pump more crude to prevent high oil prices threatening the global economic recovery.
Unrest in the crude-producing Middle East and North Africa region, particularly in Libya, amid the so-called Arab Spring revolts has sparked hefty price gains this year
“This supply disruption has been underway for some time and its effect has become more pronounced as it has continued,” the IEA said on Thursday.
The 12-nation Organization of the Petroleum Exporting Countries (OPEC) — which pumps 40 percent of global oil supplies — opted earlier this month to maintain its output levels.
“The IEA has taken an interventionist approach to the oil supply-demand balance, signalling its frustration at OPEC’s lack of decisiveness to ease supply-side risk in the face on continuing high prices and the impact on the economy,” said Westhouse Securities analyst Andrew Matharu.
“The release of 60 million barrels of oil over the next month — equating to two million barrels per day on average — throws down the gauntlet to OPEC in an effort to ease the loss of 1.5 million barrels per day from Libya.
“The majority of the volume injection is likely to be high-quality, sweet crude similar to that produced by Libya,” he added.
OPEC has yet to give any official response to the surprise announcement but an unnamed Gulf delegate told Dow Jones Newswires on Thursday that the IEA move was “surprising and unjustified.”
Another OPEC delegate added: “We will feel the impact of the drop in prices. It will cause prejudice to oil producers.”
The Paris-based IEA said the oil would be taken from its members’ strategic stocks over the next month. The move is only the third time in history that the 28-member group of oil-importing countries has taken such a step.