Oil Pierces $100 Again as 400M-Barrel IEA Blitz Fails to Calm Markets

TradingKey - During the early Asian session on March 12 (GMT+8), international crude oil prices continued to rise, WTI crude oil futures gained nearly 8%, with prices stabilizing above $90 per barrel, while Brent crude oil futures rose more than 9%, breaking above the $100 mark.

On the news front, the International Energy Agency (IEA) announced the largest-ever Strategic Petroleum Reserve (SPR) release in history, with 32 member countries agreeing to release 400 million barrels. Following the announcement, oil prices briefly pulled back to around $83 but quickly rebounded, returning above $90. Analysts believe the market is concerned that the coordinated release will be insufficient to offset supply shortages, and fears of a prolonged war have also intensified.

Release Speed Matters More Than Scale

The scale of this release has doubled compared to the 183 million barrels released after the Russia-Ukraine conflict in 2022. According to reports, the U.S. is slated to contribute 172 million barrels, followed by Japan (80M), South Korea (22.5M), Germany (19.5M), France (14.5M), and the U.K. (13.5M).

Analysis suggests that the core issue in the oil market is not a lack of oil; on the contrary, global crude oil reserves are very ample. Data shows that IEA member countries' public strategic reserves exceed 1.2 billion barrels, with another approximately 600 million barrels of corporate inventory under government regulation.

The critical issue is that sufficient oil reserves cannot flow into the market in a timely manner. While reserve releases increase inventory supply, their speed is far from being able to replace the scale of tens of millions of barrels per day in maritime oil trade.

Currently, transportation through the Strait of Hormuz remains at a standstill. Morgan Stanley (MS) daily tracking report released on March 10 shows that only three crude and refined product tankers exited the Persian Gulf via the Strait of Hormuz that day, with zero LNG and LPG vessel transits, compared to a normal level of approximately 35 ships.

The Strait of Hormuz is one of the world's most critical crude oil transportation routes, accounting for about 20% of global oil shipments. Citigroup (C) and JPMorgan Chase (JPM) data indicates that the blockade of the strait has resulted in an actual daily loss of 11 million to 16 million barrels of global crude oil supply.

Analysts believe that whether the 400 million barrels of inventory released by IEA members will be effective depends primarily on whether it can be converted into daily market flow fast enough to fill the daily supply shortfall of tens of millions of barrels caused by the blockade. However, based on current disclosures, this information remains unclear.

A "Drop in the Bucket" for Daily Supply?

The IEA has not yet announced a unified release schedule, only stating that member countries will arrange timelines based on their own circumstances. According to private estimates from large commodity traders, the actual market entry rate of these reserves is only between 1.2 million and 4 million barrels per day.

Natasha Kaneva, Head of Global Commodities Strategy at JPMorgan, is more pessimistic, believing that the actual coordinated G7 release rate can reach a maximum of only 1.2 million barrels per day. At this rate, it would take nearly a year to release all 400 million barrels.

Taking the U.S. as an example, although the theoretical maximum SPR release capacity is approximately 4.4 million barrels per day, a 2016 Department of Energy assessment suggested that its actual sustainable release capacity is only 1.4 million to 2.1 million barrels per day. From the 2022 release, the actual speed did not even exceed 1.1 million barrels per day.

In addition to limited release speeds, another issue worth considering is the lead time for these reserve releases to take effect. Even if initiated immediately, SPR crude oil cannot enter the market instantly to effectively supplement supply. Again using the U.S. as an example, after the President issues a release order, the Department of Energy needs about 13 days for bidding, awarding contracts, and commencing delivery, and subsequent transport also takes time. From now until the reserves enter the market, the daily crude oil supply gap of tens of millions of barrels will continue to accumulate.

Latest data disclosed by Bloomberg shows that major oil-producing countries such as Saudi Arabia, the UAE, Iraq, and Kuwait have already begun to cut production significantly, with a total combined shutdown of up to 6.7 million barrels per day, accounting for about 6% of global total production. This reduction is expected to continue climbing as the blockade of the strait persists.

Furthermore, within the global 400-million-barrel reserve release plan, it remains uncertain whether the U.S., which holds the largest share, can deliver on its commitment as scheduled. Currently, the U.S. Strategic Petroleum Reserve stands at approximately 415 million barrels, only about 60% of its maximum storage capacity, primarily because the U.S. released 180 million barrels following the Russia-Ukraine conflict, causing inventories to drop significantly.

Analysts believe that this IEA reserve release will have a limited actual impact on crude oil supply; its greatest significance lies in demonstrating the collective stance of major consuming nations to intervene in energy prices. Rather than waiting for the IEA release to suppress oil prices, it would be better to monitor the subsequent developments of the strait blockade and the U.S.-Iran conflict. If the blockade continues, reserve releases will find it difficult to truly fill the supply-demand gap.