400 Million Barrel Reserve Supports Market, International Crude Oil Continues to Surge, What's the Reason?

As market assessments of crude oil supply prospects change, international oil prices experienced epic volatility this week.

According to Dow Jones market data, on Monday, WTI and Brent crude oil prices both reached nearly $120 per barrel intraday before falling back. On Tuesday, both benchmarks posted their largest single-day percentage declines since March 9, 2022. On Wednesday, international oil prices fluctuated again by over 6% intraday, as investors grappled with a tug-of-war between bullish and bearish sentiments amid supply concerns.

On the news front, the International Energy Agency (IEA) decided on Wednesday to release 400 million barrels from member countries’ emergency oil reserves. Earlier, G7 ministers held a meeting on Monday to discuss coordinated oil releases through the IEA.

Analysts believe that panic in the oil market has eased somewhat, but concerns remain that the strategic reserves released by various countries are still insufficient to fill the Middle East supply gap.

Limited Effectiveness of Reserve Releases

Rebecca Babin, Senior Energy Trader and Managing Director at CIBC Private Wealth, said that while oil prices are falling, the emergency reserve release agreements have limitations because crude oil does not enter the market immediately: “Auctions, shipping, and actual deployment all take time.”

She believes that the pace at which reserves can be released is practically limited. During the largest coordinated release after the Russia-Ukraine conflict in 2022, the maximum actual release rate was about 1.2 million barrels per day, which may already be the market’s expected upper limit. In comparison, the scale of current Middle East supply disruptions is much larger, estimated at around 16 million barrels per day—roughly the volume typically transported through the Strait of Hormuz, one of the world’s most critical oil shipping chokepoints. “Some shipping is still ongoing, while others are rerouted, mainly via Saudi Arabia’s east-west pipelines and a small amount through the UAE to Fujairah. But estimates show that about 10 million barrels per day are affected or cannot pass efficiently.”

JPMorgan estimates that a coordinated G7 release of 1.2 million barrels per day is feasible. While “helpful,” it cannot substantially alleviate the 16 million barrels per day supply gap, providing only initial relief while ships are still arriving before the conflict escalates. Once these ships clear customs and cannot set sail again, the 1.2 million barrels per day release will be insufficient to address potential supply losses—JPMorgan projects the gap could reach 12 million barrels per day within two weeks.

According to data from AAA and GasBuddy, due to supply concerns triggered by the US-Israel conflict over Iran, the national average gasoline price in the US surpassed $3.50 per gallon this week, reaching the highest level since May 2024. In just 11 days, prices increased by 20%, comparable to the rise during the outbreak of the Russia-Ukraine conflict four years ago.

Former President Trump is also considering various measures, including releasing emergency reserves, suspending federal gasoline taxes, and involving the US Treasury in oil futures markets. After the Russia-Ukraine conflict in 2022, the US released 180 million barrels of strategic petroleum reserves, leading to a decline in inventories. The US Energy Department reports that the current US strategic petroleum reserve stands at about 416 million barrels, well below the full capacity of 727 million barrels.

Babin noted that US strategic reserve releases are usually only effective in the short term, with limited long-term impact. In spring 2022, the Biden administration ordered a historic release of 180 million barrels to ease oil prices; in July of that year, the US Treasury stated that analysis showed that coordinated releases with IEA partners lowered gasoline prices by 17 to 42 cents per gallon.

The Strait of Hormuz Remains Key

After the IEA’s announcement of a release, oil prices briefly declined before rebounding, with WTI crude returning above $87, gaining nearly 6%. The safety of the Strait of Hormuz has once again become a focal point for the market.

Jim Reid, Head of Macro Strategy and Global Themes at Deutsche Bank, wrote in a report to First Financial that investors will “closely monitor” whether exports from the Strait of Hormuz can resume from the current essentially halted state, especially after Saudi Arabia, the UAE, and Kuwait announced production cuts on Monday.

The US Energy Information Administration (EIA) released its monthly report on Tuesday, stating that a hypothetical closure of the Strait of Hormuz would lead to further declines in Middle Eastern oil production in the coming weeks. The report forecasts Brent crude prices will stay above $95 per barrel over the next two months, fall below $80 in the third quarter, and drop to around $70 by year-end, depending on the duration of the conflict and resulting production disruptions. The EIA also raised its 2026 average Brent crude price forecast to $78.84, nearly 37% higher than its February forecast.

Goldman Sachs estimates that if Persian Gulf oil exports decrease by 15 million barrels per day for 60 days, prices could stabilize between $89 and $93 per barrel.

Kenny Zhu, analyst at Global X, commented via email, “The Iran conflict continues to develop, with no clear signs of ending. While we cannot predict when the Strait of Hormuz disruptions will cease or how the conflict will resolve, this situation has already increased volatility in energy markets, forcing global oil and gas tankers to reroute.”

Most institutions agree that the best long-term solution to stabilize oil prices is restoring safe and reliable passage through the Strait of Hormuz.

Simon Froules, Chairman and Chief Analyst at Wood Mackenzie, said that “the supply chain won’t restart quickly after the conflict ends.” While refineries or ports may quickly load and ship stored refined products, if oil wells remain shut for an extended period, restarting to full capacity could take weeks or even longer.