The largest strategic oil reserve release plan in history hits the market, but international oil prices continue to surge

Investors chose to ignore the International Energy Agency’s (IEA) largest-ever strategic oil reserve release plan, and instead, international oil prices did not cool down but continued to rise after reaching new highs.

On March 11, IEA Director Fatih Birol stated that 32 member countries unanimously agreed to release 400 million barrels of strategic oil reserves to address the risk of global energy supply disruptions caused by the war in the Middle East. This move aims to stabilize the global energy market and mitigate the impact of escalating Middle Eastern tensions on oil supply and prices. The release will be implemented in phases within an appropriate timeframe based on each member country’s specific circumstances. The IEA will announce detailed plans later and will continue to closely monitor changes in the global oil and natural gas markets.

Birol previously stated in a communiqué that the IEA member countries currently hold over 1.2 billion barrels of public emergency oil reserves, plus about 600 million barrels of reserves controlled by government-regulated enterprises. According to relevant mechanisms, IEA member countries must ensure their oil reserves are equivalent to at least 90 days of net imports and be prepared for severe supply disruptions in the global oil market.

The 400 million barrels released are more than twice the 182 million barrels released in two batches by IEA member countries following the outbreak of the Russia-Ukraine conflict in 2022, and this is the sixth emergency reserve release directive since the IEA’s establishment in 1974. However, with the Strait of Hormuz still nearly closed, such a large-scale release has not made a significant impact, and the market believes this measure will have limited influence on oil prices.

After the IEA officially announced the news, international oil prices initially fell by $3 but quickly rebounded and stabilized. As of the close on March 11, U.S. WTI crude futures rose by $3.80, closing at $87.25 per barrel, a daily increase of 4.55%. Global benchmark Brent crude futures rose by $4.18, closing at $91.98 per barrel, up 4.76%.

In the Asian morning session on March 12, WTI oil prices continued to climb nearly 8%, currently trading at $94.14 per barrel.

David Fyfe, Chief Economist at Argus, a global energy and commodities analysis firm, said that the market seems to have already priced in the news of the IEA member countries releasing strategic oil reserves. He noted that whether the strategic reserves can effectively stabilize prices ultimately depends on how long the Strait of Hormuz remains closed, as releasing reserves is essentially a temporary and short-term measure. If shipping through the strait remains severely restricted for an extended period, relying solely on strategic reserves will not be enough to prevent further price increases.

Due to a lack of details, traders and analysts are questioning how quickly and at what flow rate the 400 million barrels will enter the market. In 2022, the U.S. released just over 1 million barrels per day at peak, averaging about 900,000 barrels daily over three months, and similar situations could recur.

Some market observers believe that strategic reserves serve as an emergency buffer rather than a long-term supply source. If the conflict persists and these reserves are heavily used, they will eventually need replenishment. In such cases, IEA intervention could ultimately increase future demand for oil.

JPMorgan’s Head of Commodities Research, Natasha Kaneva, stated in a recent report that unless the security of the Strait of Hormuz is guaranteed, all policy tools will have limited impact on oil prices, as potential supply losses over the next two weeks could reach up to 12 million barrels per day.

The German Economy Minister confirmed that the United States and Japan will be the largest contributors to the record-breaking reserve release plan.

According to Xinhua News Agency, U.S. President Trump said in an interview on the 11th that he would “slightly” reduce U.S. strategic oil reserves to lower prices and would replenish the reserves later. Data released by the American Automobile Association on the same day showed that the national average regular gasoline price continued to rise, reaching its highest level in over 20 months.

On March 12, U.S. Energy Secretary Jennifer Granholm announced that starting next week, the strategic petroleum reserve would release 172 million barrels of crude oil, with an expected delivery period of about 120 days.

French President Emmanuel Macron stated on the 11th that amid current tensions in the Middle East, G7 members should coordinate actions to restore the smooth navigation of the Strait of Hormuz. Macron mentioned that the 400 million barrels of strategic oil reserves are “70% of the G7.” He also expressed hope that G7 members would call on relevant countries not to impose restrictions on oil and natural gas exports.

According to CCTV International, Iran’s Hatam Anbia Central Command spokesperson issued a stern warning on the 11th, stating that Iran is fully capable of blocking the Strait of Hormuz. “We will never allow even a single drop of oil to pass through the Strait of Hormuz under circumstances favorable to the U.S. and its allies.” He also said that Western attempts to lower global oil and energy prices through external intervention are doomed to fail. Iran’s Islamic Revolutionary Guard Corps Deputy Commander Fadavi warned that the U.S. must consider the possibility of becoming embroiled in a prolonged, costly war, which could lead to a total collapse of the U.S. and global economies.

(Source: The Paper)