One of the largest oil price routs in history came in early May as the United States led discussions with top Middle East producers to intervene in the market.
That timing, and a subsequent price plunge this month, now have many traders wondering whether word of the talks leaked out to key players, according to a dozen traders spoken to by Reuters.
As a detailed timeline emerges of the International Energy Agency's two-month march toward the June 23 announcement it was releasing strategic petroleum reserves, one of the largest interventions ever by Western governments, traders are parsing the days of huge price moves leading up to the news.
By the first week of May, President Barack Obama was seriously considering tapping strategic reserves, according to an administration official. On May 6, the president called King Abdullah of Saudi Arabia and Kuwaiti Emir Sheikh Sabah al-Ahmad to talk about the situation, an Obama administration official said.
There is no evidence that U.S., IEA or Arab officials knowingly leaked the plans. A U.S. administration official told Reuters last week that the Saudis were grateful that a visit to the kingdom by senior U.S. officials had been kept out of the press.
World oil prices surged by 31 percent in the first four months of this year, endangering the global economic recovery, as the civil war in Libya cut its exports from the market, pushing the European benchmark Brent price above $125 a barrel.
In the same week Obama contacted the Middle Eastern leaders, oil markets had their most volatile session in years, crashing by almost 10 percent in a matter of hours on May 5, a move many traders and analysts have struggled to explain. Another gut-wrenching drop came in mid-June, well before the reserve releases were made public on June 23.
Brent oil prices also fell sharply in the hours just prior to the IEA announcement. While they continued to slide throughout Thursday, they have since rebounded back to the level they held one day before the official news and closed on Thursday around $112 a barrel.
Philip Wiper of oil brokerage PVM in London wrote in notes to clients this week of the possibility the information had leaked to some market participants. There are rumors that May 5th, the day oil prices fell $10 was the first day that Obama started to consult seriously on a plan to use the SPR in this way, wrote Wiper.
Early signs high oil prices were hitting the global economy were one factor, traders said, while others linked it to recommendations by Goldman Sachs that prices could fall. But most traders could not pinpoint specific reasons for such a steep fall without any major news driving it.
WELL KEPT SECRET?
After the early-May plunge, it would be another seven weeks before the IEA, the West's oil watchdog, would publicly unveil plans to release 60 million barrels of strategic reserves. Wiper said the public announcement still came as a surprise to most at least.
Traders say that the sheer number of officials who would have been consulted in various discussions - at IEA headquarters, in Washington, in other IEA member states and the Middle East - nevertheless meant it would have been easy for word to slip out.
Talks had been under way since late April among the 28 member nations of the agency and within its secretariat, said one person familiar with the situation.
Didier Houssin, director of energy markets at the IEA, declined to comment on whether planning information leaked.
The White House referred queries to the U.S. Commodity Futures Trading Commission (CFTC). The CFTC declined to comment.
After a meeting of the IEA's governing board on May 19, the agency urged OPEC to increase production and hinted member nations were prepared to use all tools at their disposal to help protect the global economy.
On the same day, U.S. Interior Secretary Ken Salazar downplayed the possibility, telling reporters on Capitol Hill that tapping reserves was not seen as an effective way to control pump prices.
Looking back, I think it was not such a well kept secret, said one trader at a major European trading house, who asked not to be identified.
Like major inter-government interventions into currency or debt markets, a move of this scope is fraught with risk. Oil industry sources said it is not uncommon for U.S. officials at the Departments of Energy and Treasury to discuss policy scenarios with experts outside of government first.
The Rapidan Group, a consultancy run by former White House energy advisor Robert McNally, released a May 27 note to clients predicting Washington would tap its reserves if OPEC did not act to cool prices at its June 8 meeting in Vienna.
In an interview with Reuters, McNally said his prediction was based largely on reading the tea leaves and public statements from the agency, even though it had chosen not to release reserves immediately after Libya's exports were cut in late February.
WHO WAS IN THE LOOP?
On June 15, oil prices plunged in high volume trading, in a move reminiscent of the May 5 crash. Traders again struggled to explain the move.
On the same day, two reports caught traders' attention. Medley Global Advisors, a hedge fund consultant, distributed a report saying reserve holders were seriously considering a release, according to sources who saw the report. Medley declined comment.
Also that day, Reuters reported that in May and early June, U.S. and Saudi officials had secretly discussed a plan for the U.S. to release light, sweet oil from its Strategic Petroleum Reserve and then replenish the SPR with lower-quality, sour crude provided by Saudi Arabia.
The U.S. would ship some of the SPR crude to Europe, where refineries were suffering most from cuts in Libyan supply. The swap plan was ultimately abandoned, in part because Riyadh was unwilling to discount the supplies of its sour crude, two people familiar with the plans told Reuters.
After members of the Organization of the Petroleum Exporting Countries (OPEC) could not agree on a production increase at their meeting in early June, the Obama administration sprang into action, canvassing IEA members to see how much each could contribute to a release, sources said.
On June 17, Obama authorized a request for an IEA feasibility study, as did IEA members Britain, South Korea and Japan, according to people familiar with the matter.
Meanwhile, the IEA also discussed its plans with other major economies including China, which is not a member, and Saudi Arabia, which had announced a unilateral production increase after failing to convince OPEC to act, said people familiar with the matter.
On June 20 the United States contacted the IEA, requesting the agency prepare a plan to tap reserves for approval. The agency, primed to respond to emergencies like Hurricane Katrina and Rita, responded June 21.
The plan was then sent to all 28 IEA member states, who were given 48 hours to respond.
Oil prices started falling in the hours immediately before the IEA made its plans public in an announcement from its headquarters in Paris last Thursday (June 23) at 09:00 EDT (1400 GMT).
The Wall Street Journal reported on Friday that the CFTC is investigating what the paper called suspicious trading ahead of the announcement.
In the week leading up to the announcement, hedge funds slashed their bets on higher oil prices that they had built up as the crisis in Libya developed.
Data from the CFTC and the UK-based ICE Exchange showed hedge funds cut back their long positions by as much as 40 percent over that week.
From early May, until the day of the announcement last Thursday, the Brent crude oil dropped to around $114 a barrel from above $125 a barrel.
On the day of the official news, Brent oil prices fell and continued the downward trend through Monday. But since then, oil has rebounded sharply, gaining $10 to trade at $112 a barrel on Thursday June 30.
(Additional reporting by Roberta Rampton in Washington D.C. and Muriel Boselli in Paris; editing by Matt Robinson, Michael Williams and Martin Howell)