A Move to Release Millions of Barrels of Oil Hasn't Kept Oil Prices Down

Key Takeaways

• The IEA and member countries agreed to distribute 400 million barrels of oil, double the agency’s biggest-ever release in 2022.

• Brent crude prices rose to above $90 per barrel while West Texas Intermediate climbed to around $85, driving energy stocks higher.

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A global energy watchdog rode to the rescue. The oil market shrugged.

The International Energy Agency and its member countries on Wednesday said it would tap its reserves and distribute 400 million barrels of crude—its biggest ever distribution, double the 2022 release that followed Russia’s invasion of Ukraine. Crude oil prices, however, ticked higher after the IEA announcement, with Brent crude and West Texas Intermediate up about 5% to around $92 and $86 per barrel, respectively. Energy stocks, including those of including oil majors Exxon (XOM) and Chevron (CVX) were also higher, while U.S. broad market indexes were recently in decline. (Oil futures, to be sure, are off three-digit highs seen earlier this week.)

Escalating tensions in Iran appear to be weighing on investor optimism that the war will be brief, and disruptions to oil supply transitory. Meanwhile, market experts and economists are warning about the consequences of higher-for-longer crude prices as vessels are trapped in the Persian Gulf, ships have been attacked in the Strait of Hormuz, and neither Iran nor Israel have made concrete movements toward a truce.

WHY THIS MATTERS TO YOU

Long periods of high crude oil prices are bad for the average person, because they drive up gas prices, the cost of air travel, and—when coupled with weaker asset prices and higher interest rates—can induce a recession.

Prediction markets are signaling expectations that the war will go on for at least six more weeks and crude prices will stay high. Polymarket bettors put the highest probability, about 78%, that the Iran-U.S./Israel war will be over by the end of June. They also put the highest probability, or 31%, on West Texas crude topping $95 by the end of this week.

Some historic parallels, like the Ukraine-Russia war, would suggest that peak oil prices are over and done with, accordingto Adam Turnquist, Chief Technical Strategist for LPL Financial.

“Technically, Brent has fallen back below the 2023 and 2024 highs ($97.69 and $92.18, respectively), and despite still‑strong momentum, the inability to hold those levels indicates waning buyer enthusiasm,” he wrote in emailed commentary today. “We see this as a positive sign not only for a potentially swift resolution with Iran, but also for oil markets and the broader equity market.”

Related Education

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Other market experts warn that investors should brace for pain across asset classes.

“Geopolitical uncertainty can pressure both stock and bond prices at the same time, even when the underlying economy is resilient,” wrote Josh Hirt, Vanguard senior U.S. economist, in a note Wednesday.

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