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Crude oil steady after big price drop

Crude oil moved above $91 a barrel Friday, a day after the International Energy Agency announced it would release 60 million barrels of crude oil from reserves.

By Pablo GorondiAssociated Press / June 24, 2011

A PT Pertamina worker opens a gauge near crude oil tanks on Bunyu island, Indonesia's East Kalimantan province in this Feb. 8, 2011 file photograph. A day after industrialized nations agreed on June 23, 2011, to release oil from emergency stockpiles for the third time in history, crude prices were steady.

Beawiharta/Reuters/File

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Oil prices edged above $91 a barrel on Friday, steadying after a big drop the day before when the IEA announced the release of emergency crude supplies.

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By early afternoon in Europe, benchmark oil for August delivery was up 63 cents to $91.65 a barrel in electronic trading on the New York Mercantile Exchange.

In London, Brent crude for August delivery was down 36 cents to $106.90 a barrel on the ICE Futures exchange.

Nymex crude fell $4.39 to settle at $91.02 on Thursday after the International Energy Agency said it will make 60 million barrels available over a 30-day period, half of which will come from the U.S. Strategic Petroleum Reserve.

Analysts said the move likely reflected increasing concern that the global economy is slowing, and that high oilprices boost inflation and dampen consumer demand.

"We think the IEA did the right thing, since we believe that world economies were on the verge of a dangerous energy-induced slowdown, if not an outright recession," said Edward Meir at MF Global in New York.

"Breaking the back of this price spiral was therefore important in so far as some of the recent inflationary gains will now likely be reversed — assuming energy prices continue trending lower — while more importantly, central banks in key emerging markets will be less inclined to raise rates."

Earlier this week, Federal Reserve Chairman Ben Bernanke warned that the U.S. economy is weaker than previously forecast, and lowered this year's gross domestic product growth estimate to 2.9 percent from 3.3 percent.

The IEA move "may ease tightening demand-supply concerns and result in further downside pressure in oilprices in the near-term," ANZ bank said in a report. "The softening of oil prices may be a significant plus to boost global economic growth through the second half of the year."

The release of reserves also comes after OPEC decided against boosting its production quotas at a meeting earlier this month.

Some observers were puzzled by the timing of the IEA move since crude had already fallen from near $115 on May 2 and Libya's 1.6 million barrels a day of oil output have been shut down since February.

"The IEA's announcement appears to be nothing more than a well-timed public relations stunt designed to punish speculators," said Richard Soultanian of NUS Consulting. "The impact will be short-lived and the markets will quickly revert back to the pattern they have been following for the past months, which is closely following movements in the U.S. dollar."

When the dollar gains, crude tends to fall because a stronger U.S. currency makes commodities such as oilmore expensive for investors with other currencies. When the dollar weakens, crude prices usually go up.

The euro was down at $1.4205 on Friday but that was still higher than the recent low recorded Thursday, when investors' appetite for risk was battered.

In other Nymex trading in July contracts, heating oil rose 2.18 cents to $2.8035 a gallon while gasoline dropped 1.22 cents at $2.8254 a gallon. Natural gas futures fell 0.6 cent at $4.187 per 1,000 cubic feet.