①After the IEA announced the largest joint oil reserve release in history, international oil prices rose instead of falling, surging nearly 5% on Wednesday; ②Traders believe that the emergency oil reserve release under the backdrop of Iran tensions is insufficient to offset the impact of the near halt of oil flows through the Strait of Hormuz, production disruptions in the Persian Gulf region, and a shortage of crude oil storage.
On Wednesday, member countries of the International Energy Agency (IEA) agreed to release 400 million barrels of strategic petroleum reserves, marking the largest coordinated release in history. Following this announcement, international oil prices rose instead of falling. As of the time of writing on March 12, $Crude Oil Futures (APR6) (CLmain.US)$ 、$Brent Last Day Financial Futures (MAY6) (BZmain.US)$ Up over 7%.
Logically, with more oil expected to flood the market, oil prices should have fallen. However, traders believe that the emergency oil reserve release amid Iran tensions is insufficient to compensate for the effects of the near halt of oil flows through the Strait of Hormuz, production disruptions in the Persian Gulf region, and a shortage of crude oil storage.
Fatih Birol, Executive Director of the IEA, stated on the 11th that the 32 member countries of the IEA have agreed to release 400 million barrels of strategic petroleum reserves to address the risk of global energy supply disruptions caused by the conflict in the Middle East. He noted that the release of strategic petroleum reserves will be implemented step-by-step within an appropriate timeframe based on the specific circumstances of each member country. The IEA will announce detailed plans for the release of the 400 million barrels of oil reserves at a later date.
Influenced by the aforementioned news, U.S. and Brent crude oil prices initially dipped but quickly rebounded. On Wednesday, Brent crude futures rose 4.8%, closing at $91.98 per barrel, while U.S. WTI crude futures climbed 4.6%, settling at $87.25 per barrel. Earlier this week, both benchmarks surged to near $120 per barrel but then retreated sharply amid volatile trading, plummeting over 11% on Tuesday.
As an IEA member, Japan has announced that it will release its strategic petroleum reserves as early as March 16. Japanese Prime Minister Sanae Takagi stated on Wednesday that in coordination with the IEA's actions, Japan will release private-sector oil reserves equivalent to 15 days of usage and national oil reserves equivalent to one month of usage.
On Wednesday, U.S. President Trump discussed the use of the U.S. Strategic Petroleum Reserve during an interview with a TV station in Ohio. He said, "We will reduce some reserves so that we can lower oil prices." Additionally, during a speech in Kentucky, Trump described the record-breaking oil release coordinated by the IEA as something that "will significantly reduce oil prices."
Insufficient Release Volume?
However, analysts and traders hold differing views.
Josh Young, Chief Investment Officer of Bison Interests, an oil and gas investment company, stated that this decision is actually "extremely bullish" for oil prices because it undermines the market's motivation to fill the oil supply gap. Moreover, if the Strait of Hormuz remains closed, there will be fewer means available to cushion supply losses.
Young pointed out that over the past ten days, global daily oil supply has suffered an average loss of approximately 15 million barrels due to ongoing conflicts. In light of this, the release of oil from reserves "will not be sufficient to resolve the issue, but it is much better than doing nothing."
Fawad Razaqzada, a market analyst at financial services company StoneX, stated: "Judging from the reaction in oil prices, the market seems to have already priced in the anticipated release of 400 million barrels from reserves. There has been almost no fluctuation in oil prices."
He remarked: "Investors appear unconvinced that this measure will achieve its intended effect, and they are likely to believe that oil transportation through the Strait of Hormuz will remain effectively shut down for an extended period." He also mentioned that Iran has indicated a shift from "proportional retaliation" to "chain retaliation."
According to CCTV International, a spokesperson for Iran’s Khatam al-Anbiya Central Headquarters emphasized on Wednesday (March 11) that any vessels belonging to the United States, Israel, or their allies, as well as their oil cargoes, would be considered "legitimate targets" for Iran's armed forces. The spokesperson stressed that Iran’s previous "proportional retaliation" phase had concluded, and going forward, Iran would adopt a "chain retaliation" strategy, abandoning the one-to-one retaliation pattern.
Michael Lynch, President of Strategic Energy & Economic Research, provided a more detailed analysis of the volume of oil involved in this conflict. He estimated that since the outbreak of the conflict on February 28, the loss of oil supply due to Iranian tensions may amount to approximately 175 million barrels.
Lynch noted that a small amount of oil continues to be transported through the Strait of Hormuz, while one million barrels per day are being shipped via Saudi Arabia’s Yanbu oil export terminal and through the Red Sea.
Amin Hassan Nasser, CEO of Saudi Aramco, stated during a conference call with investors that the world's largest oil company produces around 7 million barrels per day and expects to soon divert 5 million barrels of oil to the Yanbu port in the Red Sea.
Lynch explained that as shipments from the Yanbu port increase, approximately 12 to 13 million barrels of oil per day will be withdrawn from the global market. Once the strait reopens, some supplies will return to the market; currently, these oil reserves are being stored.
Moreover, storage capacity is nearing exhaustion. Lynch estimated that due to insufficient storage, at least 5 million barrels per day of production have already been halted. He pointed out that production cuts will escalate over time, potentially reaching 8 to 10 million barrels per day in the near future.
He stated that the IEA’s release of reserves aims to offset these supply losses while "preventing panic and hoarding behaviors." However, he added that this release "is only enough to support slightly more than three weeks of the ongoing war."
Therefore, combined with the news that Iran has begun laying mines in the Strait of Hormuz, 'the market views this release as sufficient for now, but only just,' Lynch said. 'This might generate at least some bullish sentiment toward oil prices.'
Pavel Molchanov, an investment strategist at Raymond James, stated prior to the IEA's official announcement of the oil reserve release that the key issue lies in how long the conflict will last. He noted that if the conflict extends far beyond the end of March, IEA member countries may need to release more than 400 million barrels of oil.
According to CCTV News, U.S. President Trump stated on March 11 local time that there are 'almost no targets left to strike' within Iran, and that U.S. military action against Iran is 'about to conclude.'
However, according to Israeli and U.S. officials, they are preparing for at least two more weeks of sustained strikes against Iran.
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