Ignoring IEA's largest storage release plan in history, oil prices return to $92, what signals is the market sending?

International Energy Agency (IEA) Plans Largest-Ever Strategic Reserve Release Still Fails to Suppress Oil Prices, Reflecting Market Deep Concerns Over Strait of Hormuz Blockade

On Wednesday, Brent crude futures briefly rebounded to $92 per barrel, as of press time at $90.86, with gains narrowing to 3.5%. WTI crude is also up 3.5%.

According to a previous article by Wallstreetcn, the IEA is pushing for the largest emergency oil reserve release in history, totaling 400 million barrels—more than twice the amount released after the Russia-Ukraine conflict in 2022. G7 energy ministers issued a statement supporting “taking proactive measures to address the current situation, including utilizing strategic reserves.”

Some analysts warn that the strategic reserve release can only buy a few days of buffer, and the key to the situation’s direction still depends on whether the Strait of Hormuz can reopen. Marex energy market analyst Sasha Foss told CNBC, “This conflict must end within this week, or oil prices will surge back above $100.”

Bloomberg analyst Alex Longley believes that the real impact on the oil market is not the scale of the release, but the speed at which crude enters the market. He cites estimates from JPMorgan that:

Currently, the feasible speed of joint releases by various countries is about 1.2 million barrels per day. During the 2022 Strategic Petroleum Reserve (SPR) release, the maximum was just over 1 million barrels per day for a month, and at times, the release rate was even less than half that level.

In contrast, if the situation escalates, the disruption of oil supplies transported through the Strait of Hormuz could reach about 15 million barrels per day. This means that although the market discusses a release of 300 to 400 million barrels, the real determinant of the market impact will be the pace and execution details of the release.

IEA Initiates Largest-Ever Reserve Release, Backed by G7

IEA Executive Director Fatih Birol stated on Tuesday that member countries currently hold over 1.2 billion barrels of public emergency oil reserves, with an additional 600 million barrels of industry stocks under government obligation.

Birol pointed out, “Oil market conditions have significantly worsened in recent days,” citing two major issues: blocked transportation routes and substantial reductions in oil production. “This is creating significant and rising risks for the market,” he said, “We have discussed all available options, including opening the IEA emergency oil reserves to the market.” Member countries are scheduled to decide on whether to release emergency stocks on Wednesday.

On Wednesday, Germany’s economy minister confirmed that the IEA has requested member countries to release 400 million barrels of oil reserves, with Germany participating, though details are still unclear. On the same day, Japan’s Prime Minister Suga Sano, the third-largest holder of strategic oil reserves globally, announced Japan will release its strategic reserves independently to counter the impact of the Middle East conflict. The release could start as early as Monday, March 16.

Signals of Escalating Conflict, Strait Tensions Persist

Meanwhile, signs of escalation in the US-Iran conflict have emerged. Reports indicate that US forces have sunk several Iranian ships, including 16 mine warfare vessels, near the Strait of Hormuz. The UK Maritime Trade Operations (UKMTO) said on Wednesday that three ships near the Iranian coast were attacked with projectiles, with one hit vessel located inside the Strait of Hormuz.

Dubai authorities also confirmed that two drones crashed near Dubai International Airport on Wednesday, injuring four people, and the surrounding airspace was briefly closed.

Earlier on Tuesday, US Energy Secretary Chris Wright posted on social media that the US Navy had escorted a tanker through the Strait of Hormuz, causing a sharp drop in oil prices. However, White House press secretary Karoline Leavitt later clarified to the media that the US Navy “is not currently escorting any tankers or ships,” and oil prices recovered some of the losses.

Analysts: The Risk of $100 Oil Depends on Conflict Duration

Analysts generally believe that the effectiveness of the strategic reserve release is limited; the duration of the conflict is the core variable determining oil price trends. Marex’s Foss bluntly stated that IEA’s reserve release “can only buy a few days, but ultimately, everything depends on whether the Strait of Hormuz can reopen.”

Ninety One global natural resources head Paul Gooden said in a Tuesday research report, “If tensions ease in the coming weeks, oil prices may fall… but even then, prices are unlikely to return to the $60–$70 range seen earlier this year.”

He further warned, “If supply disruptions persist longer, the consequences could be more severe—oil prices could surge further, potentially breaking above $120, until high prices start to curb demand.”

Risk Disclaimer

Market risks exist; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.