Even with the decline, oil prices are still some 14% higher on the day so far. It underscores the fact that that the roughly $12 drop is just a minor knock. And that typically is what the IEA reserves release tends to suggest in extraordinary circumstances. It was the same back in 2022 amid the Russia-Ukraine conflict. All else being equal, it roughly acts as a $10-20 discount buffer to prices.
The report earlier says that US officials are looking at a “joint release in the range of 300m to 400m barrels”. That is roughly between 25% to 30% of the 1.2 billion barrels in the reserve. They said such a figure would be “appropriate”. That of course is quite a staggering figure but it remains to be seen who will be the ones supplying these.
For some context, the coordinated IEA release saw 240 million barrels made available in stages. The US alone provided ~120 million barrels independently with the IEA as a collective also provided ~120 million, although half of the IEA amount is also from the US i.e. ~60 million barrels. The rest of the IEA members only joined in with an additional 60 million barrels.
All that being said, what this does is it mainly just tends to suppress prices. To be more specific, it is market prices. Even if we do see prices on the charts come off the boil, the prices at the pump are likely to stay elevated.
The main issue with the emergency oil reserves release is that while it provides more crude oil supply, it cannot make up for more refining capacity.
In essence, the move by the G7 and IEA is mostly a psychological play in hopes that market players will take the bait to speculate on lower prices amid their “big” play.
But when you take that into consideration, this might just be the only major resistance standing in the way of much higher oil prices from here. And if the war in the Middle East extends for more than just four to five weeks, expect oil prices to start running away again in the same way it poked and prodded at the $80 level last week. This time around though, we might be having that same conversation but with the $120 mark instead.
The only real relief for markets will come when Trump decides enough is enough, and that could definitely happen sooner rather than later as his pain points are being pressured.
This article was written by Justin Low at investinglive.com.
