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Friday, June 24, 2011

Oil dives to 4-month low as emergency stocks unleashed

Oil tumbled 6 percent on Thursday to a four-month low after the world's top consumers released emergency oil reserves for the third time ever, a surprise intervention to aid the struggling global economy.

The International Energy Agency announced it would inject 60 million barrels of government-held stocks in the global market, immediately increasing world supply by some 2.5 percent for the next month and sending prices spiraling, with U.S. crude prices erasing all of the year's gains.

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 Gulf efforts to hike output.

"It comes after the Saudis said they would increase output so it suggests they think this might not be enough," said Helen Henton, head of commodity research for Standard Chartered Bank. "I think it will knock prices lower. I expect prices to be lower a month from now."

Goldman Sachs, whose oil price forecasts are closely watched by markets, said the release of the IEA oil could knock prices for Brent crude down by $10 to $12 a barrel. (read more)