Oil Reversal Weakens, IEA Reserve Release Proposal Pressures Rally
Oil prices lost earlier gains and fluctuated around US$87 per barrel after a Wall Street Journal report suggested the International Energy Agency (IEA) was pushing for a record-breaking release of emergency reserves to stem the price shock caused by the Iran war. Brent rebounded after briefly gaining 3.7%, while WTI fluctuated around US$83, extending a period of extreme volatility this week that pushed prices above US$100.
According to the report, the reserve release scheme would surpass the 182 million barrels released by IEA members in 2022 following Russia's invasion of Ukraine. IEA members finally voted on the proposal on Wednesday, with a mechanism for implementation without approval; however, a single country's rejection could delay its implementation. The G7 group had previously requested the IEA prepare a scenario for emergency reserve releases.
This proposal serves as a key transmission channel restraining the rally by temporarily increasing supply and reducing the risk of panic bidding in the physical market. Saxo Markets believes the release of reserves serves as both a safety valve and a signal that the risk of supply disruptions is serious enough to warrant emergency action, requiring the market to balance potential additional supply with the ongoing conflict.
However, the root of the supply problem remains centered on the effectively blocked Strait of Hormuz, a narrow waterway that typically handles about a fifth of global oil flows. Shrinking tanker traffic and production cuts by major Gulf producers continue to restrict crude and product flows, so risk premiums remain susceptible to widening if there are no signs of a consistent recovery in shipping.
Volatility is also exacerbated by rapidly changing messaging from the US administration. The market was hit by a sharp correction on Tuesday when confusion over tanker escorts emerged, including a later-deleted post by Energy Secretary Chris Wright and a subsequent White House clarification that there was no operation. At the same time, President Donald Trump's post about discussions in the strait, along with mixed signals between the possibility of an end to the conflict and indications of an escalation in military operations, has caused prices to react to headlines.
The conflict, which is entering its second week, has also heightened inflation concerns, particularly after US retail gasoline prices surged and increased domestic political pressure. Bloomberg reported that Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait have reduced collective production by 6.7 million barrels per day, while the UAE's largest refinery has halted operations after a drone attack. Saudi Aramco CEO Amin Nasser warned of dire consequences for markets and the global economy if the disruptions persist. In midday trading in Singapore, Brent crude for May delivery fell 1% to US$86.88 per barrel, and WTI crude for April delivery fell 0.6% to US$82.91. (alg)
Source: Newsmaker.id
