The IEA Ministerial Meeting being held on Tuesday has resulted in an agreement of some of its members to release 60 million barrels of crude oil from various countries’ strategic petroleum reserves.
The United States has agreed to release 30 million barrels of crude oil from its SPR. The rest of the IEA members in Europe and Asia will release the remaining 30 million barrels.
The concerted release is said to have a greater impact on the global oil markets than just a single country’s release—but analysts have questioned how much of an impact it would really have on the global markets, considering that 60 million barrels is less than a day of global oil demand.
But what the market is fearing here is lost Russian barrels. Lost to the market, that is. And for this, we’re talking about less than 7 million barrels a day that are exported.
To offset that with 60 million barrels for a short while is certainly achievable. What’s more, it’s very unlikely that all Russian crude oil exports would be stopped, even if they are sanctioned. It is far more likely that China would continue to purchase crude oil from Russia even if there are sanctions, leaving an even smaller share for the SPR releases to cover.
But the market is interpreting the 60 million barrels as a mere drop in the big oil bucket, as evidenced by the rise in prices. Shortly after the announcement, WTI shot up $8.54 (+8.92%) on the day to $104.26. Brent, meanwhile, jumped up $7.85 (+8.01%) to $105.82 per barrel on the day.
The SPR release seems to have the opposite of the intended effect on oil prices, and that’s not terribly surprising. An announced SPR release is also a signal to the market that the market is in trouble. Global crude oil inventories are low, and demand is soaring. And now, Russia’s oil supply—or at least part of it—could soon be unavailable to the Western world should additional sanctions become necessary. The announcement of the release of barrels from the SPR only highlights those issues.
The IEA, however, has said that the SPR release sends “a unified and strong message to global oil markets that there will be no shortfall in supplies as a result of Russia’s invasion of Ukraine.”
By Julianne Geiger for Oilprice.com
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