Price of oil tumbles after shock move by watchdog
Oil prices have fallen after a shock move by the International Energy Agency to open its emergency reserves.
The price of North Sea Brent crude fell by more than 5% to 107 US dollars a barrel with light crude falling to 90 dollars per barrel after the IEA said it would release 60 million barrels of oil to make up for the loss of Libyan exports. Half of the oil will come from the US's strategic petroleum reserve, while the UK is contributing around three million barrels.
The IEA said the move was about helping ease a real oil shortage not prices, but it comes just weeks after the Opec cartel failed to agree an increase in production to help ease the rising oil price.
The development added to pressure on commodity stocks in London as the FTSE 100 Index fell by around 100 points to a new three month low of 5666.
Investors' appetite for riskier assets was also hit by a loss of confidence in the global economic recovery after the US Federal Reserve yesterday gave a gloomy forecast for the world's biggest economy.
Mining shares, which feature heavily in the FTSE 100 Index, dropped by as much as 7% today as commodity prices followed oil downwards. Federal Reserve chairman Ben Bernanke last night said the problems plaguing the US economy "may be stronger and more persistent than we thought" and it downgraded its growth forecast for this year.
It now expects the economy to grow between 2.7% and 2.9% this year, whereas it had expected growth of between 3.1% and 3.3%, while it said inflation will remain high. The bearish comments from the Fed have combined with fears over the debt crisis in Greece.
The US dollar strengthened against major currencies as the economic uncertainty, fuelled by a weaker than expected figure on US benefit claims, caused nervy investors to seek safer places for their assets.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: "Currently the appetite for risk is light and another round of uncertainty for global economic prospects has driven sentiment lower, with money flowing again to safe havens at the expense of equities."
Paul Watters, head of AA public affairs, said past experience suggests that drivers are unlikely to see an equally dramatic drop in the price of fuel.
"In March, the average UK price of petrol levelled off at 133.5p a litre when oil hit a plateau of 115 US dollars.
"Yet when oil returned to 115 US dollars for a while in early to mid May, petrol dropped to only 135.75p- even with the benefit of the fuel duty cut in April."
He added: "We and drivers across the UK hope that this oil price crash will lead to a price war on UK forecourts, but we remember post-hurricane Katrina when a 4p drop in wholesale petrol prices, revealed by the industry, took nearly three months to be reflected in its entirety at the pump."
The amount North Sea Brent crude fell by reaching $107 a barrel