Oil prices tumbled to a four-month low this evening after the world's consumer nations said they would join forces to help the world economy by releasing emergency oil reserves. This is only the third time reserves have been tapped.
Oil prices fell to their lowest level since the eruption of Libya's unrest in February hit exports from the OPEC member, putting a strain on global oil supplies.
The International Energy Agency said it would help ease the strain by releasing 60 million barrels of government-held stocks, immediately increasing global supply by nearly 2.5%.
The move shocked traders who had been expecting the IEA to give top exporter Saudi Arabia more time to make up for the supply shortfall following OPEC's failed meeting on June 8, when other members blocked efforts to increase oil output.
Brent crude plunged by $8 a barrel after the news, but this evening it was trading down $5.90 at $108.31 a barrel. US crude fell $4.01 a barrel to $91.40.
Oil markets were already off sharply ahead of news of the release, due to worries over global fuel demand following higher than expected US jobless claims, forecasts of lower US growth and evidence of a slowdown in Chinese manufacturing.
'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.
The IEA release, at 2 million barrels per day (bpd) over the next 30 days, is more than the daily loss of Libya's 1.2 million bpd exports and comes despite many views that the world is not immediately short of crude.
The previous two releases were immediately after the first Gulf War and Hurricane Katrina.