By FT reporters
Oil prices dropped more than 7 per cent after western nations released the biggest amount of oil from their emergency strategic stocks since 1991, in a warning shot aimed at Opec, the oil producers? cartel.
The International Energy Agency agreed to release 60m barrels of oil in the coming month to offset the daily production loss of 1.5m barrels of high quality oil from Libya, the north African country engulfed in a civil war.
The US led the release, providing 50 per cent of the crude oil, with Japan, Germany, France, Spain and Italy providing most of the rest. The IEA said that it was in consultations with China, the world?s second- largest oil consumer but declined to say whether Beijing would join the effort.
Brent crude prices tumbled 7.4 per cent to $105.72 a barrel after the news was released, before settling at $106.12 in late afternoon trade in London.
The move is only the third time in the history of the IEA, established in 1974 as a counterbalance to Opec after the Arab oil crisis. Western governments are concerned about the impact of high crude prices on the economic recovery.
?Greater tightness in the oil market threatens to undermine the fragile global economic recovery,? the IEA warned, citing the Libyan supply disruption and ?the normal [summer] seasonal increase in refiner demand?.
The US had been in close contact with oil producing and consuming countries about disruptions to the international oil market that could affect the global economy, said Steven Chu, US energy secretary.
?We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery,? Mr Chu said.
?As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary.? The US special petroleum reserve is currently at a record high level of 727m barrels. David Goldwyn, a consultant and until recently the US State Department?s top diplomat for oil affairs, said weak economic growth demonstrated that the oil disruption was inflicting ?severe and long lasting damage? – a precondition for Washington to authorise the release of the oil reserve.
Robert McNally, a consultant and White House oil adviser from 2001 to 2003, said that although the IEA was pointing to Libya, ?in reality the forcing action is the surge in oil prices?.
Earlier this month, Opec members failed to agree an official increase in production quotas despite a concerted effort by Saudi Arabia, the world?s biggest producer and traditionally seen as the cartel?s de facto leader, to boost output. Iran opposed the increase.
The IEA said in May that it would use all tools at its disposal to increase supply unless the cartel raised production.
Mohammad Ali Khatabi, Iran?s Opec governor argued on Wednesday that there was no evidence of a supply shortage necessitating the ?interference of oil consumers?.
?Maybe they think there is more demand, but as far as we know the market enjoys stability in supply and demand,? he told the Financial Times.
By Sylvia Pfeifer and Javier Blas in London and Anna Fifield in Washington and Najmeh Bozorgmehr in Tehran
? The Financial Times Limited 2011