Timothy Gardner, Noah Browning

LONDON/WASHINGTON (Reuters) – Top oil consuming nations may find that one of their main tools to fight high global oil prices – the release of strategic stockpiles – will prove inadequate to soothe markets starved of Russian supply since its invasion of Ukraine.

The 31-member International Energy Agency, representing industrialized nations but not Russia, presided over the fourth coordinated oil release in its history on March 1 of over 60 million barrels of crude – its largest yet.

Sources say that the United States may consider another large release of as much as 180 million barrels over several months from its Strategic Petroleum Reserve to stop consumer energy inflation.

But the agreements unveiled so far have failed to stop a dizzying climb in oil prices, underscoring the finite power of emergency reserves to address long-term supply problems like those stemming from Russia’s war on Ukraine, strong consumer demand, and capacity constraints in other producer nations to make up the shortfall.

Josh Young is the chief investment officer of Bison Interests. “Historically, SPR release have temporarily brought oil prices lower but are then followed up by higher prices due to insufficient supply.” It is possible that oil prices will rise following a temporary dip, and the SPR might need to be replenished at higher prices.

Numerous consumer countries, including the United States of America, have banned Russian oil imports from the time of the invasion. Moscow describes it as a “special operation”, tightening the market after a rebound in fuel demand and the production limit set by the Organization of the Petroleum Exporting Countries.

The IEA anticipates that 3,000,000 barrels per day (3 ml/d) Russian oil – which is equivalent to more than a third its exports – will be closed down as buyers reject purchases and sanctions are imposed.

Repeated stockpile releases, meanwhile, will further thin the world’s supply cushion. “Each release is likely to have diminishing effect on the oil markets,” said John Paisie, president of Houston-based consultancy Stratas Advisors.

Graphic: U.S. SPR crude stocks – https://fingfx.thomsonreuters.com/gfx/mkt/mypmnqaodvr/eiaspr.PNG

The White House announced that President Joe Biden would give remarks Thursday about his administration’s actions.

Although this news drove oil prices lower by over 4% on Wednesday night, some analysts were skeptical.

Washington had also pledged in November to release 50 million barrels of SPR oil in a coordinated move with China, India, South Korea, Japan and Britain, a deal that also failed to stop oil’s climb above $100 a barrel.

Late last year, the Organisation for Economic Cooperation and Development (most of whose members are IEA) saw state storage reach 1.48 Billion barrels. This was down 100 MILLION barrels over a 2017 record.

A Reuters analysis of IEA data shows government-controlled oil stocks among members states was at its lowest since 2005 even before the March 1 release.

Government data shows that the U.S. levels of SPR have fallen to their lowest level since 2002.

Graphic: Total government-controlled OECD stocks –

IT’S NOT WORKING. REPEAL IT.

Some analysts call for more oil to be released from the reserves. JP Morgan suggests the IEA release 50mln barrels per month for the remainder of the year.

Neil Atkinson, an analyst in oil and former senior official at the IEA, stated that big releases are not enough to impact a market with 100 million bpd of global oil.  

He said, “This time, it will have to, by comparison with a large bazooka.”

However, the longer-term solution to market rebalancing is not stockpile drawsdowns but increased commercial production.

“Stocks of strategic oil have a limit and flows of commercial oil do not. ClearView Energy Partners analyst Kevin Book in Washington said, “Flows that cease are more serious than strategic stock can resolve over time.”

It can take some time to increase production.

U.S. oil production has more than doubled since 2000s. This helped the country rise to the top spot in terms of global producer. However, oil production dropped during the coronavirus epidemic. The U.S. Energy Information Administration forecasts that the United States would be back as a net-importer in 2022 and then return to net exporter status by 2023.

Sources indicate that OPEC+ and its ally producers (Russia, OPEC+) will continue with plans to increase production slightly in the coming months. This is despite the fact that OPEC+’s kingpin Saudi Arabia continuing to refuse to accept calls for more rapid increases.

Past limited disruptions were helped by stockpiles. The IEA’s previous coordination of the 60 million barrels release in 2011 amid the Libyan civil War saw prices drop to about $10/barrel. The price of 60 million barrels was dropped to $62 per barrel in 2005, after Hurricane Katrina.

On news of the release, global benchmark futures declined by $4.36 (or 3.84%) to $109.09/barrel at 0103 GMT. However, they were still up slightly from the low of $97 prior to the invasion. [O/R]