Oil tumbles on oil stock release, economic gloom

By @ibtimes on

Oil fell sharply on Thursday with North Sea Brent down more than $8 per barrel after the United States and International Energy Agency and they would release 60 million barrels of oil from strategic stockpiles to help the global economy.

The announcement came after OPEC failed to raise production at a meeting on June 8 and despite assurances from OPEC's biggest producer Saudi Arabia that it would lift supplies unilaterally.

Brent crude futures for August fell $8.49 to a low of $105.72 a barrel by 1352 GMT (9:52 a.m. EDT), after settling $3.26 a barrel higher at $114.21 on Wednesday.

U.S. crude dropped more than $5.00 to a low of $89.69.

The IEA said it would release 2 million barrels a day (bpd) over an initial 30 days onto the world market to fill the gap in supplies left by the disruption to Libya's output.

Libya, a member of the Organization of the Petroleum Exporting Countries, was exporting about 1.2 million bpd before the rebellion that brought its oil industry to a standstill.

This supply disruption has been underway for some time and its effect has become more pronounced as it has continued, said the IEA. It said expectations were that Libyan production would remain off the market for the rest of 2011.

Greater tightness in the oil market threatens to undermine the fragile global economic recovery, it said.

Analysts and traders said they had not expected the move:

I'm really surprised. Everyone's been saying they've got enough stocks. This should keep WTI (U.S. crude) under the $100 (per barrel), but really we want Brent there, and this should help, said Robert Montefusco, broker at Sucden Financial.

The move came as the oil market fell sharply amid worries over global fuel demand following higher-than-expected U.S. jobless claims, forecasts of lower U.S. growth and evidence of a slowdown in Chinese manufacturing.

New U.S. claims for unemployment benefits rose more than expected last week, a government report showed on Thursday, suggesting little improvement in the labor market this month after employment stumbled in May.

The sell-off also followed a move by the U.S. Federal Reserve on Wednesday to cut its growth forecasts for the world's biggest economy.

The Federal Reserve estimated the U.S. economy should grow 2.7 percent to 2.9 percent this year, down from a range of 3.1 to 3.3 percent forecast in April. It also cut its 2012 growth forecast to a range of 3.3 percent to 3.7 percent.

Oil rose 3 percent on Wednesday, boosted by data showing a drop in U.S. crude and a surprise draw in gasoline inventories.

Analysts said oil was also likely to remain under pressure due to uncertainty surrounding Greece and the broader euro zone debt crisis, which has raised questions over the outlook for European economic growth.

The euro is coming under pressure again and there is talk of risk for European banks, said Montefusco.

(Additional reporting by Manash Goswami in Singapore; editing by Jason Neely)

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