Oil tumbled Thursday after the International Energy Agency, which includes the U.S., said it will release some of its emergency oil supplies to stave off a possible spike in energy prices that could strain the global economic recovery.
The IEA, based in Paris, will make 60 million barrels available over a 30-day period. Half of that will come from the U.S. Strategic Petroleum Reserve, which currently holds 727 million barrels of crude. The SPR was last tapped in 2008 as oil rose to a record $147 per barrel.
With Libya's oil supplies likely unavailable for at least the remainder of this year because of unrest there, and global demand for oil expected to grow in the summer, the IEA said it was concerned that tighter supplies threatened to "undermine the fragile global economic recovery."
On Thursday benchmark West Texas Intermediate crude fell $4.39, or 4.6 percent, to settle at $91.02 per barrel on the New York Mercantile Exchange. Brent crude, used to price many international varieties, lost $6.95, or 6.1 percent, to settle at $107.26 per barrel on the ICE Futures exchange.
The IEA's action comes two weeks after the Organization of Petroleum Exporting Countries failed to agree to boost oil production. At the time, IEA said it was disappointed by OPEC's lack of response to rising oil prices.
The move was somewhat unexpected because oil prices have dropped in the past few weeks. WTI is down about 20 percent from its recent high of $113.93 per barrel at the end of April. Brent has fallen about 14 percent from a high of $126.12.
Michael Lynch, president of Strategic Energy & Economic Research said the release of oil over the next month will probably depress prices temporarily, but he's doubtful it will have a long-term impact.
"It creates an immediate glut (of oil)," he said "But they're not solving the problem."
If oil demand continues to rise to historic levels this year, oil suppliers will continue to have trouble keeping up, Lynch said.
The IEA announcement came amid further indications of a slow economic recovery in the U.S. Federal Reserve Chairman Ben Bernanke on Wednesday warned that some problems _ in the financial and housing sectors _ would linger into next year. And on Thursday the Labor Department reported an increase in applications for unemployment benefits.
Meanwhile, retail gasoline prices in the U.S. dropped for the 20th consecutive day, down a penny from Wednesday, to $3.612 per gallon, according to AAA, Wright Express and Oil Price Information Service. That's about 21 cents lower than a month ago.
In other Nymex trading, heating oil fell 17.15 cents, or 5.8 percent, to settle at $2.7994 per gallon and gasoline futures lost 15.24 cents to settle at $2.7764 per gallon. Natural gas gave up 12.4 cents to settle at $4.193 per 1,000 cubic feet.