SPR release demonstrates healthy management of floor and ceiling approach to oil prices

It might not sound like much of a victory. The United States and other oil-consuming countries release emergency stocks of oil to put a lid on prices. The result: crude prices in London rise by $1 since the program began, three months ago.



But many oil experts say the strategic releases -- just the third-ever by a group of consumer countries -- were a major success. Not only did they likely avert a further rise in oil prices during the peak U.S. driving season, but they set a precedent for consuming countries to keep bullish oil speculators in check.


"The releases completely changed the psychology of the oil market," said Amy Jaffe, an energy policy expert at Rice University's Baker Institute in Houston.

"The move worked, as it has in the past, because speculators now have to worry that extra oil may come if prices reach a certain level. It showed they are willing to use the strategic reserves."

The program to release 60 million barrels by the 28-nation International Energy Agency, which formally ended on Thursday, was first announced on June 23, when it set off an immediate drop of $7 a barrel in Brent crude prices.

The program, led by the U.S. government, was controversial, with lots of oil market players deriding it as a political move to appease testy consumers, after U.S. gasoline prices rose to near $4.00 a gallon in May.

IEA's extra oil supplies may have helped accelerate a 22 percent slide in U.S. oil prices from 30-month highs near $115 in early May. U.S. crude traded below $90 on Friday.

While European benchmark Brent crude has bounced back to its June price levels, it has not come anywhere near a high of $127 a barrel reached in April, a price some economists warned could tip major economies back into recession.

The IEA releases came in response to surging oil prices and supply disruptions in war-torn Libya. As Libya starts to resume output following the toppling of Muammar Gaddafi's regime, the IEA says it sees no need to release more oil for now.