Pumpjack seen at sunrise on October 14, 2014 near Bakersfield, California.
Lucy Nicholson | Reuters
Oil prices rose more than 8% on Thursday, with Brent crude hitting $100 a barrel, as traders remained unsure whether the release of government stockpiles could offset the massive supply shock caused by Middle East wars.
West Texas Intermediate rose 8.8% to $95 a barrel and global benchmark Brent was trading around 8.88% higher at $100, even after the International Energy Agency announced the largest emergency release of crude oil reserves in history.
The IEA announced Wednesday that its 32 member countries will release 400 million barrels of oil from emergency stockpiles, marking the largest coordinated depletion since the agency was established after the 1973 oil embargo.
The United States announced it would release 172 million barrels from the Strategic Petroleum Reserve, with Energy Secretary Chris Wright saying shipments could begin next week and take about 120 days to complete.
The IEA’s decision also shows how serious the risk of oil shortages is and suggests that the IEA believes the war is unlikely to end soon.
Oil markets ignored the announcements as prices continued to rise, highlighting traders’ skepticism that the measures would be able to close the supply gap if flows through the Strait of Hormuz remain disrupted.
“Right now, prices are still in a state of panic. There’s a lot of emotion, fear and uncertainty built into the prices we see,” said Pavel Molchanov, senior investment strategist at Raymond James.
MST Marquee energy analyst Saul Kavonic said the record IEA strategic inventory release would add some much-needed volume to the market, although it would only close by at most a quarter of the 20 million barrels per day supply gap created by the closure of the Strait of Hormuz.
“However, the IEA’s decision shows how serious the risk of oil shortages is, suggests that the IEA believes the war is not likely to end soon, stocks that are being drawn down now will need to be replaced later, and bodes well for higher prices even after the war ends,” he told CNBC.
Roughly one-fifth of the world’s oil supply passes through the Strait of Hormuz, which connects the Persian Gulf to global markets.
Timing and logistics remain uncertain
Industry veterans say one of the main reasons for the market’s uncertainty is uncertainty about how quickly barrels will reach the market.
The IEA’s announcement marked an unprecedented intervention, but the agency did not provide details about how quickly countries would release their reserves or how the oil would be distributed.
“This is one of the key question marks: how long will it take for 400 million barrels to be physically delivered to the market,” Molchanov said.
Crude oil prices since the beginning of the year
“400 million is a big number…but this is the biggest oil supply disruption since at least the 1970s, so we need a lot of oil and we need it quickly,” he said.
Because the Strategic Stockpile is stored separately in each IEA member state, technical and logistical constraints can delay the distribution of barrels.
Molchanov estimates it could take 60 to 90 days for enough oil to reach the market, longer than traders hoping for immediate relief.
