The IEA announced the release of 400 million barrels of strategic petroleum reserves, marking the largest-scale release in history, with the United States contributing 172 million barrels. However, the market is more focused on the pace and scale of the release: institutional estimates suggest that the actual global deployment rate may be only about 1.2 million barrels per day, while the supply gap caused by the disruption of the Strait of Hormuz reaches 11 to 16 million barrels per day. Additionally, there exists a 13-day lag in the deployment of U.S. oil reserves along with production capacity constraints. This release might prove to be too little, too late.
The IEA announced the largest-ever release of strategic oil reserves in history, but the market quickly realized that what truly determines oil prices is not 'how much is in reserve,' but 'how much can be released per day.'
According to reports from CCTV News, the International Energy Agency (IEA) announced on the 11th that 32 member countries had agreed to release 400 million barrels of strategic oil reserves.
In terms of figures, this represents the largest collective release operation in the IEA's history. Following the Russia-Ukraine conflict in 2022, IEA member countries released a combined total of approximately 183 million barrels across two rounds, whereas this current release doubles that amount. According to reports, multiple countries have already disclosed their individual contributions:
United States: 172 million barrels
Japan: approximately 80 million barrels
South Korea: 22.5 million barrels
Germany: approximately 19.5 million barrels
France: up to 14.5 million barrels
United Kingdom: 13.5 million barrels
However, the truly critical information for the energy market has yet to be disclosed — including the release pace, duration, and the ratio of crude oil to refined products. These details often matter more than the total volume itself.
Judging from the market reaction, traders are evidently waiting for this information as well. After the announcement, oil prices briefly dropped to around $83 but quickly rebounded, with WTI crude climbing back above $90.
The real issue: It’s not about inventories, but supply “flow.”
To understand why the market showed little reaction to the release of 400 million barrels from reserves, one must clarify the fundamental difference between 'stock' and 'flow.' The anchor for commodity market pricing lies in the daily physical supply and demand of spot transactions, rather than static inventory figures.
The backdrop to the current surge in oil prices is the near halt of transportation through the Strait of Hormuz.
This strait handles approximately 20% of the world's oil shipments. As the conflict escalates, a significant amount of crude oil from the Persian Gulf cannot be exported normally.
Data from Citigroup and JPMorgan shows that the blockade of the strait has resulted in a daily loss of 11 to 16 million barrels of crude oil supply globally. In other words, the global oil market has suddenly lost a supply source close to the size of Saudi Arabia’s production.
Therefore, the crux of the issue is not whether there is oil globally.
IEA member countries hold over 1.2 billion barrels in public strategic reserves, with an additional 600 million barrels of corporate inventory under government supervision. In absolute terms, inventories are not scarce.
The real issue is that oil cannot flow from production areas to the market.
A commodities analyst summarized it in one sentence:
"This is a flow problem, not an inventory problem."
Reserve releases can increase inventory supply but cannot replace the daily global oil trade conducted via maritime transport.
To put it bluntly, the 400 million barrels released by IEA member countries will fail to fill the enormous daily gap of 16 million barrels if they cannot be converted into daily market flows at a sufficiently rapid pace.
The release rate is the key variable determining oil prices.
Against this backdrop, the question that concerns the market most has become: How quickly can these reserves enter the market?
Homayoun Falakshahi, a senior analyst at Kpler, stated bluntly: "The devil is in the details; the critical issue lies in the release speed."
Currently, the IEA has not announced a unified release schedule, stating only that each member country will arrange its timetable based on its own circumstances.
Large commodity traders have privately estimated that the actual market entry rate of these reserves will range between 1.2 million and 4 million barrels per day.
Natasha Kaneva, head of JPMorgan’s commodity market strategy, offered a more pessimistic estimate: the coordinated maximum release rate of the G7 could only reach 1.2 million barrels per day.
At this rate, even if all 400 million barrels were released, it would take nearly a year.
U.S. Strategic Petroleum Reserve: Largest in scale but with equally significant limitations
In this operation, the United States is expected to bear the largest share.
U.S. Energy Secretary Chris Wright stated that the U.S. would release 172 million barrels from its Strategic Petroleum Reserve (SPR), with the entire release process expected to last approximately 120 days.
He stated in an interview, “This is to buy time for the global market during a supply disruption caused by Iran.”
However, the U.S. Strategic Petroleum Reserve (SPR) itself also faces practical limitations.
Currently, the U.S. Strategic Petroleum Reserve holds about 415 million barrels, approximately 60% of its maximum storage capacity. Following the Russia-Ukraine conflict in 2022, the U.S. released 180 million barrels of reserves, which significantly reduced inventory levels.
Theoretically, the maximum release capacity of the U.S. SPR is approximately 4.4 million barrels per day. However, a 2016 assessment by the U.S. Department of Energy concluded that the actual sustainable release capacity is only between 1.4 and 2.1 million barrels per day.
In 2022, the actual release rate did not exceed 1.1 million barrels per day.
Fatal Time Lag
Distant water cannot quench an immediate fire. In addition to being slow, the release of reserves also faces a significant time lag.
From policy implementation to physical circulation in the market, a cumbersome commercial process is required. After the U.S. President issues the order to release reserves, the Department of Energy needs approximately 13 days to conduct tenders, award contracts, and begin deliveries. Subsequently, crude oil must be transported via pipelines or tankers to refineries and end-user consumption points.
This means that even if the process starts immediately, SPR crude oil will not enter the market to form effective supply until the end of March. During this period, the daily supply gap of 16 million barrels will continue to accumulate. JPMorgan estimates that by the end of March, the cumulative crude oil deficit caused by geopolitical conflicts will exceed 100 million barrels. A daily replenishment of merely 1.2 million barrels would be like trying to put out a raging fire with a cup of water.
More critically, the blockage effect of the Strait of Hormuz is beginning to backfire upstream. With crude oil unable to be shipped out, storage tanks along the Persian Gulf are rapidly filling up. Once storage capacity reaches its limit, oil-producing countries will have no choice but to shut down wells.
The latest data disclosed by Bloomberg shows that major oil-producing countries such as Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait have already begun significantly cutting production, with a combined shutdown of up to 6.7 million barrels per day, accounting for approximately 6% of global total production. Moreover, for every additional day the strait remains blocked, this figure will continue to rise. This directly escalates what was initially a logistics issue into a production capacity destruction problem.
For the market, it serves more as a 'stabilizing signal'
From an investor's perspective, this IEA action resembles more of a policy stabilizing signal.
On one hand, it conveys to the market the stance of major consuming nations jointly intervening in energy prices, aiming to suppress risk premiums.
On the other hand, it buys time for the market—awaiting the resumption of shipping through the Strait of Hormuz.
However, if the blockade of the Strait persists, the release of reserves will hardly fill the gap between supply and demand.
As one energy trader put it:
"Strategic reserves can cushion shocks but cannot replace normal global oil trade."
Therefore, for the market, the true significance of this record-breaking release plan still hinges on one question:
When will the Strait of Hormuz reopen to navigation?
Editor/Lambor
