A decision last week by the International Energy Agency (IEA) to release an additional 60 million barrels of oil into the market should be considered quantitative “teasing” than easing, because the move is short-lived, says one analyst.
John Licata, Chief Commodity Strategist at Blue Phoenix, says the IEA’s move to add more oil to the marketplace when there is no rise in demand or notable disruption in supply is troubling.
“Understanding the move from the IEA was like trying to solve the Rubik’s Cube in the dark of night,” Licata says. “There really was no reason why this move occurred and if anything it made OPEC look far less significant on the global stage.”
The IEA announcement last Thursday to release 2 million barrels of oil reserves per day over 30 days to make up for the loss of Libya’s exports triggered a 6 percent plunge in oil prices within a day.
The move drew anger from the Organization of the Petroleum Exporting Countries (OPEC), which demanded on Monday that the the IEA halt the release of emergency oil stocks immediately, saying the agency was going against free-market principles by manipulating oil prices.
Licata says the IEA’s decision, which he describes as a “bold move,” was clearly based on price movement, but he believes it was “a waste of bullet,” because after the initial drop, oil prices will rebound.
“Even if we do get down to $85 per barrel, which technically we could, I actually think that we could see a very, very big amount of buying catapult us back towards that triple digit level,” he says.
“We're still not even into the key months in terms of hurricane season, typically that's when the demand starts to pick up only because the supply imbalances tend to grow much more.”
The release of oil reserves has only happened three times in the past three decades including the early 1990s during the Persian Gulf War and Hurricane Katrina in 2005.