Oil prices shot up more than 8 percent when Brent crude soared above the $100 per barrel mark on Thursday, as traders are not convinced that the release of government inventories could offset the huge supply shock caused by the war in the Middle East.
The West Texas Intermediate rose 8.8 percent to $95 per barrel, and global benchmark Brent was trading more than 8.88 percent higher at $100, despite the International Energy Agency declaring its largest release of crude reserves in history.
The IEA reported on Wednesday that its 32 member nations would release 400 million barrels of oil out of emergency holdings, the largest coordinated withdrawal of oil reserves since the agency was founded in response to the 1973 oil embargo.
The United States declared it would release 172 million barrels of its Strategic Petroleum Reserve, and Energy Secretary Chris Wright claimed that deliveries would start next week and take about 120 days to finish.
Saul Kavonic said, The IEA decision also signals how acute the oil shortage risk is, suggests the IEA does not believe the war is unlikely to end soon.”
Those announcements have been dismissed by the oil market, which is now steadily increasing its prices, indicating that traders questioned whether the actions would close the supply gap in case oil flows in the Strait of Hormuz are again interrupted.
Pavel Molchanov, Senior Investment Strategist at Raymond James, said, “Prices right now are still in panic mode. There is a lot of emotion, fear, uncertainty built into the price that we see.”
Saul Kavonic, Energy Analyst at MST Marquee, stated that the record IEA strategic stock release should contribute to the volumes required in the market, though only to a quarter of the 20 million barrels per day supply gap that will be caused by the closure of the Strait of Hormuz.
He told CNBC, “But the IEA decision also signals how acute the oil shortage risk is, suggesting the IEA does not believe the war is [likely] to end soon, and stock draws now will need to be replaced later, portending higher prices even after the war ends.”
However, a fifth of global oil supply passes through the Strait of Hormuz that links the Persian Gulf to global markets. Industry veterans said that one key reason markets stood uneasy was the uncertainty about how quickly the barrels would reach the market.
Although the IEA’s announcement was an unprecedented intervention, the agency did not specify how individual nations would tap their reserves within a shorter period, or how the oil was to be distributed.
Molchanov added, “That’s one of the key question marks, which is how long will it take for the 400 million barrels to be physically delivered onto the market.”
He stated, “Four hundred million is a big number … but this is the largest oil supply disruption since at least the 1970s so we need a lot of oil, and we need it quickly.”
Each of the IEA member countries has its strategic stockpiles separately, which implies that technical and logistical bottlenecks would slow the movement of barrels.
Molchanov estimated that it might take 60 to 90 days before the oil starts meaningfully entering the market, longer than traders wish to have a quick fix.
