If the G7 releases oil reserves, how much would be needed to stabilize oil prices?

According to the Financial Times, analysts are skeptical about whether the release of strategic reserves can resolve the Hormuz Strait crisis, believing that the current supply shock far exceeds the upper limits of any previous reserve release in history. On Monday, G7 finance ministers stated that countries are prepared to "take necessary measures" and will continue consultations on releasing oil reserves to address the energy crisis triggered by disruptions in the Hormuz Strait. This crisis has led to a reduction of up to 20 million barrels per day in oil and refined product supplies passing through the strait. After the news broke, the market reacted quickly—Brent crude benchmark prices on Monday dropped from a high of $119 per barrel to below $90 at one point. At press time, Brent oil was quoted at $92. However, multiple market participants warned that even if countries release hundreds of millions of barrels from reserves, the release speed (historical maximum of 1.3 million barrels per day) remains far behind the supply cut scale (20 million barrels per day). If tensions in the Hormuz Strait persist, there is limited downside for oil prices. Doubts about the Actual Effectiveness of Reserve Releases on Oil Prices Historically, large-scale releases of strategic oil reserves have occurred only five times, the earliest dating back to the 1990-1991 Gulf War, and the most recent after Russia’s 2022 invasion of Ukraine. However, none of these releases were large enough to cope with the scale of the current crisis. Martijn Rats, global oil strategist at Morgan Stanley, said existing evidence is "clearly mixed" regarding whether reserve releases can push down oil prices. "Many times, prices actually continue to rise, because the release of reserves itself signals to the market that we’re in a highly tense moment," he said. Paul Horsnell of the Oxford Institute for Energy Studies also pointed out that reserve releases do not necessarily change market behavior. Buyers often continue scrambling for any available crude flows rather than relying on governments' limited inventories. "Replacing flow with inventory is extremely difficult," he said. "The market is never satisfied with that." Global Reserve Totals: Abundant on Paper, Limited in Practice On paper, IEA member countries collectively hold about 1.2 billion barrels of public emergency reserves—plus accessible industry stocks, the total is considerable. According to IEA data, by the end of last year, government-controlled crude reserves in OECD countries exceeded 900 million barrels, and there were about 300 million barrels of refined products (including gasoline and diesel). In addition, oil companies, traders, and refineries in the industry hold about 2.8 billion barrels of oil products, including 600 million barrels technically under government control. However, these numbers are greatly discounted in practical operations. Horsnell points out that some stocks counted as reserves are actually part of normal commercial operations, such as crude oil in pipelines. "You can’t release it all, or the entire system stops functioning," he said. Additionally, countries like the UK and Greece have no government-controlled reserves at all, relying entirely on commercial inventories, with significant flexibility in how each country defines its stocks. The IEA also estimates that about 2 billion barrels of crude are currently loaded on offshore tankers; a substantial portion belongs to Russia, Iran, or Venezuela. If countries revise sanctions, these barrels could theoretically be released to buyers. Release Speed Far Behind Supply Gap Even if countries are determined to use reserves, release speed is a major limiting factor. Past releases were usually sold via auctions to large oil companies and traders, who would then transport the oil to refineries in need; European governments also allowed refineries to reduce legally mandated stocks, pushing more products onto the market. Rats said, "The highest historical record is all IEA member states jointly releasing 1.3 million barrels per day. Theoretically, they might reach 3 to 3.5 million barrels per day, but that has never happened." By comparison, under normal circumstances, about 20 million barrels of crude and refined products flow daily through the Hormuz Strait. Horsnell bluntly stated, "This is the largest oil crisis in history—the problem is far beyond any possible reserve release." Asia Hit First, Europe to Face Shortages Facing a supply shock, Asia bears the most pressure. Because Asia heavily relies on Middle Eastern oil imports, some governments have started energy rationing and restricting refined product exports. Energy Aspects analyst Kitt Haines said, "Everyone will face challenges. I don’t think any contingency plan has considered a supply disruption of this magnitude. Asia is especially impacted because it imports the most oil from the Middle East." Although U.S. and EU politicians currently seem calm about supply tightness, market observers' concerns are clearly more urgent. Rats pointed out that if the situation persists, Europe will face aviation fuel shortages "within weeks," warning that the problem has already spread to Asia and the United States. "This is the largest supply shock in oil market history—almost double the size of the Suez crisis, which affected 10% of global supply at the time," he said. Risk Disclaimer The market carries risks; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users’ specific investment goals, financial situation, or needs. Users should consider whether any opinions, perspectives, or conclusions in this article are appropriate for their particular circumstances. Investing based on this is at your own risk.