Oil markets sent a clear signal this week that the massive release of stockpiled crude oil by the United States and its allies is far from addressing the unprecedented supply disruption caused by the Iran war.
More than 30 countries in Europe, North America and Northeast Asia have agreed to pump 400 million barrels of oil into the market to stem rising energy prices. The United States is leading the effort, releasing 172 million barrels from the Strategic Petroleum Reserve, or 43% of the IEA total.
This would be the largest release of oil reserves in the 50-year history of the International Energy Agency, which is tasked with maintaining energy security for member countries during global crises.
However, the oil bazooka has not inspired market confidence. Oil prices have risen more than 17% since the IEA announced the emergency stockpile release on Wednesday. brent Crude oil prices, an international benchmark, closed above $100 for the second consecutive session on Friday.
Brent Crude Oil Futures for the past 5 days
Tamas Varga, an analyst at London-based oil broker PVM, said the explanation was simple. Tankers have been attacked in the Persian Gulf, the vital Strait of Hormuz remains essentially closed, and Iran’s new supreme leader has vowed to keep the trade chokepoint closed.
“The impact of these policy announcements will be limited until transportation is reopened,” said Tom Lyles, senior vice president of upstream research at consulting firm Rystad Energy.
Before the war, Saudi Arabia, Iraq, Kuwait and the United Arab Emirates exported about 14 million barrels per day (bpd), Liels said. He said about 5 million to 6 million barrels a day could be exported through the Saudi-UAE pipeline, which ends in the Red Sea and the Gulf of Oman.
This will only allow about 9 million barrels a day, or about 10% of global supplies, to pass through the strait, leaving a bottleneck in the region until shipping resumes, Lyles said. At first glance, 400 million emergency barrels would cover about 40 days of lost supply, analysts said.
But the reality is more complicated, Lyles said. “There’s only so much that can be released in a given period of time. 400 million barrels won’t hit the market right away,” he said.
Not enough stockpiles
Oil supplies disrupted by the war far exceed the reserves the IEA can release each day. As a result, Bernstein analysts told clients in a note Thursday that the measure will have limited impact on the trajectory of oil prices.
The US will release 172 million barrels over 120 days. This represents 1.4 million barrels per day, just 15% of the supply lost due to the Hormuz shutdown. It takes 13 days from President Donald Trump’s approval for the barrels to hit the market.
The IEA did not provide details on when other member countries would start releasing barrels or how much. Each of the 32 member states said it would make a decision based on the circumstances appropriate to its country.
The last time the IEA announced an emergency stockpile was in response to Russia’s invasion of Ukraine. According to consulting firm Rapidan Energy, member companies could reach a peak total of 1.3 million barrels per day in September 2022. Rapidan said the IEA could increase releases to nearly 2 million barrels per day.
“It buys time, but it doesn’t solve the crisis,” Bernstein analysts said.
Mr. Liles said oil prices could rise to a level that would start to reduce demand before stockpiling releases begin in earnest. Rystad expects the two-month war to push Brent oil prices up to $110 a barrel by April. The four-month war could push Brent to $135 a barrel by June.
Depletion risk
IEA member states also risk depleting their stockpiles. The 400 million barrels scheduled to be released is equivalent to 33% of the member countries’ stockpiles of 1.2 billion barrels. The 172 million barrels the United States plans to release is 41% of the 415 million barrels currently held in the Strategic Petroleum Reserve.
U.S. Energy Secretary Chris Wright said Wednesday that the White House plans to replace more than 200 million barrels of oil it is spewing over the next year at no cost to taxpayers.
The IEA’s measures also do nothing to address the 20% of liquefied natural gas exports that cannot reach global markets due to the strait closure. LNG is a type of natural gas that is cooled into a liquid and loaded into tankers for export. Natural gas is used for power generation and heating.
Tobin Marcus, head of U.S. policy and politics at Wolf Research, said stockpiling would partially cushion the oil shock from the war.
“However, this in no way eliminates the need to reopen the Channel, and we do not believe we will receive more support after this,” he said.
