Oil prices have witnessed a noticeable increase of more than 17% since the International Energy Agency announced the largest withdrawal of oil reserves in its fifty-year history. The price of Brent crude, the global standard, settled above $100 a barrel for the second consecutive session on Friday.
Despite this, implementing the process of releasing emergency stocks will take time, and the announced quantity remains much less than the shortage in supplies resulting from the closure of the Strait of Hormuz, as stated in a report published by CNBC and viewed by Al Arabiya Business.
An unprecedented supply crisis
The oil market this week clearly showed that the massive release of stockpiled oil by the United States and its allies is not enough to confront the unprecedented supply disruption caused by the war on Iran.
More than 30 countries in Europe, North America and Northeast Asia have agreed to pump 400 million barrels of oil into the market with the aim of limiting rising prices. The United States is at the forefront of this process by releasing 172 million barrels of strategic oil reserve, which represents about 43% of the total amount of the International Energy Agency.
This step is the largest oil stock release in the history of the International Energy Agency, which was established to ensure energy security for its member states during global crises.
The market is not reassuring
Despite these measures, the market did not gain the desired confidence, as crude rose by more than 17% since the emergency release was announced on Wednesday. On Friday, the price of Brent crude closed above $100 a barrel for the second session in a row.
“Tanks are under attack in the Gulf, the Strait of Hormuz remains essentially closed, and Iran’s new leader has pledged to keep the vital trading point closed,” explained Tamas Varga, an analyst at PVM in London.
Tom Liles, senior vice president of oil research at Rystad Energy, added: “Until traffic reopens, such political statements will have a limited impact on the market.”
Export via alternatives is limited
Before the war, Saudi Arabia, Iraq, Kuwait, and the UAE exported about 14 million barrels per day. About 5 to 6 million barrels per day can be exported through Saudi and Emirati pipelines to the Red Sea and the Gulf of Oman. This means that about 9 million barrels per day – roughly 10% of global supplies – will remain confined to the region until the passage of oil through Hormuz resumes.
Considering the emergency release of 400 million barrels, it covers about 40 days of lost supplies, but Tom Liles confirms: “The matter is more complicated, as it is not possible to pump all this quantity at once into the market.”
Stocks are unable to fill the gap
The oil lost due to the war is much larger than the inventories the agency can release daily, limiting the impact of the move on the path of prices, according to Bernstein analysts.
The United States will release 172 million barrels over 120 days, an average of 1.4 million barrels per day, which represents only 15% of the supplies lost due to the Hormuz closure. It takes 13 days for the barrels to reach the market after President Trump signs the decision.
The International Energy Agency did not clarify when the rest of the member states would begin releasing or the quantities they would release, indicating that each country would decide that according to its circumstances.
Limited impact and risk of inventory depletion
Even with this move, prices may rise before the releases fully impact the market. Rystad expects that a two-month war could push Brent prices to $110 a barrel by April, while a four-month war could push them to $135 a barrel by June.
The agency’s members face the risk of depleting their stocks: 400 million barrels constitute 33% of the members’ total stocks of 1.2 billion barrels, while the American quantity represents 41% of the strategic stock of 415 million barrels.
Chris Wright, US Secretary of Energy, confirmed that the White House plans to compensate for the released oil with 200 million barrels over the next year without burdening taxpayers with any costs.
However, this move does not solve the problem of 20% of LNG exports that cannot reach the global market due to the closure of the strait. Liquefied gas is used to produce electricity and heating, and is shipped in liquid form to global markets.
Tobin Marcus, head of US policy at Wolfe Research, explained: “The step will partially mitigate the oil shock resulting from the war, but it does not replace the reopening of the Strait of Hormuz, and we do not expect more aid after this release.”
