By Greg Peel

The Dow closed down 59 points or 0.5% while the S&P came back to 0.3% down at 1283 and the Nasdaq managed to close up 0.7%.

As Frankie Valli would say, oh what a night.

Wednesday night's startling revelation by Ben Bernanke the Fed actually had no idea why the US recovery was failing was still resounding around the corridors of Wall Street last night as stock markets opened. But things were only going to get worse.

As Wall Street slept, HSBC announced its "flash" Chinese manufacturing PMI for June had dropped to 50.1 from the May read of 51.6 to reach an eleven month low. The official number comes out next Friday, but this estimate clearly indicates China is suffering from monetary tightening, seasonal destocking, and slowing economic recoveries amongst its export markets. We are again reminded of Punxsatawney Phil, given it was around this time last year China's PMI dipped below the 50-neutral level.

And as Wall Street traders were having breakfast, an equivalent Markit preliminary read had the eurozone manufacturing PMI dropping to 52.0 from 54.6 to an eighteen month low. Markit's composite PMI, which adds in services and construction, fell to a twenty month low of 53.6 from 55.8.

The euro had staged a recovery after Tuesday night's vote of confidence in the Greek government, but on the PMI news a jittery market sent the currency down 1.6% to under US$1.42. The US dollar index subsequently rallied to 75.32. If forex traders are jittery, Wall Street traders are no less than fragile at present, so when it was revealed that last week's new jobless claims in the US rose by 9,000 to 429,000 when economists had expected a fall to 415,000, stock markets opened in a free-fall.

If all of the above wasn't enough, the first real shock of the session was yet to come. Out of the blue, the International Energy Agency, which is made up of member states including the US and Saudi Arabia, announced it was releasing 60m barrels from the Strategic Petroleum Reserve in order to counter lost production from Libya. The IEA has only made two such releases in history prior to last night, the previous release being in response to Hurricane Katrina.

Unsurprisingly, energy stocks were slammed. The counter to Libya is a direct attack on Brent crude ? now the world's benchmark crude ? which has played the role of substitute for Libyan production despite Saudi Arabia stepping up its own production. And it worked. At the ICE session close, Brent crude was down US$6.95 to US$107.26/bbl. West Texas chimed in with a US$4.39 drop to US$91.02/bbl.

The IEA announcement drew a mixed and heated response. The SPR is there to provide a buffer against supply shocks. Is Libya really a supply shock? The oil price has already fallen a long way from its highs. There are two likely conclusions to draw.

The first is that this is purely a political move from the US. Last night the ongoing debt ceiling and budget cut talks between the Obama Administration and the Republican majority Congress broke down yet again with Republican representatives allegedly storming out of negotiations on the Democrats insistence on tax increases. The deadline has been extended to early August before the US government will have to shut down on a lack of debt ceiling increase, but it appears a resolution is no closer. Obama is under immense electoral pressure, and now even the Fed has no idea what to do. High petrol prices have been blamed as fundamental to this year's US slowdown, and then suddenly the IEA releases 60m barrels.

Libya? Pig's you know what. But there is another reality here. Saudi Arabia cannot make up the lost Libyan production for one factual and one speculative reason. The factual reason is that excess Saudi production is of heavy, sour crude, and the world's petrol refineries are set up to crack light, sweet crude ? the sort of stuff produced in Libya, in Nigeria, in the US midwest and Canada (WTI) and in the North Sea (Brent). In other words, Brent crude has indeed been pushed up by lost Libyan production. The speculative reason, on the other hand, is that Saudi Arabia simply doesn't have the capacity for the excess production it claims it has ? a long held assumption.

So the sudden announcement of an SPR release might be short-term bearish from an oil price point of view, but it may also be long term bullish.