International Energy Agency (IEA) Releases 60 Million Barrels of Oil

Yesterday, Federal Reserve Chairman Ben Bernanke announced the potential for a third round of quantitative easing only IF economic conditions continue to decline in the United States. He predicted that “inflation will subside as the effects of past energy and other commodity price increases dissipate”.

The Obama administration decided shortly after Bernanke's press conference that they were not willing to wait for an official third round of easing (QE3). So, in a press release this morning  the International Energy Agency (IEA) announced it would release 60 million barrels of oil from global reserves. Over half of the oil released would come from the U.S. Strategic Petroleum Reserve.

The Strategic Petroleum Reserve is located in a man-made underground salt domes in Louisiana and Texas. The U.S. holds 727 million barrels of oil in the reserves which is enough to cover 85 days worth of U.S. oil imports. The U.S. would release the equivalent of 5 percent of its reserves to the market.

The decision sparked controversy between the Republicans and Democrats. Republicans called the Obama administration's plan to release the oil a political move, while Democrats said the effort to ease shortages may be too little, too late.

On a global scale, this is the third time that the IEA has released strategic oil reserves. The last time was shortly after the Hurricane Katrina.

Crude oil prices and shares of oil companies plunged after the news was reported. Brent crude oil fell more than $6 to $107 per barrel of oil. Shares of Exxon XOM and Chevron (NYSE: CVX) were all down 3 percent in mid-morning trading. The Dow was down 200 points, but has pared some of its losses since the announcement.

The timing of the IEA move comes only days ahead of the end of the Federal Reserve's second quantitative easing program (QE2). In the absence of continued Fed buying of Treasuries, and the liquidity it adds to the financial markets, moving to reduce oil prices will be another helping hand to the U.S. economy. Knocking $20 a barrel off oil prices would reduce America's annual oil spend by some $150 billion.