Ignoring the largest release plan in IEA history, oil prices return to $92—what signal is the market sending?

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The International Energy Agency (IEA) plans the largest ever strategic reserve release, but it has still failed to suppress the surge in oil prices, reflecting the market’s deep concerns over the continued blockade of the Strait of Hormuz.

On Wednesday, Brent crude futures briefly returned to $92 per barrel, with the latest price at $90.86, narrowing the gain to 3.5%. WTI crude is up 3.5%.

According to a previous article from Wall Street Insights, the IEA is now pushing for the largest emergency oil reserve release in history, totaling 400 million barrels, more than twice the amount released after the 2022 Russia-Ukraine conflict. G7 energy ministers stated in a statement that they support "taking proactive measures to respond to the current situation, including the use of strategic reserves."

Analysts warn that strategic reserve releases can only buy a few days of buffer; the key to the situation remains whether the Strait of Hormuz can re-open. Marex energy market analyst Sasha Foss told CNBC, "This conflict must end within this week, otherwise oil prices will soar above $100 again."

Bloomberg analyst Alex Longley believes that what really affects the oil market is not the size of the release, but the speed at which crude enters the market. He cited JPMorgan estimates:

Currently, the feasible speed for joint releases by countries is about 1.2 million barrels per day. During the U.S. Strategic Petroleum Reserve (SPR) release in 2022, the highest was slightly above 1 million barrels per day within one month, and for some periods the release speed was less than half that level.

By contrast, if the situation escalates, the crude supply disruption via the Strait of Hormuz could reach as high as 15 million barrels per day. This means that although the discussed release size is 300-400 million barrels, what will really determine the impact on the oil market is the pace and implementation details of the release.

IEA launches largest-ever reserve release, G7 backs it

IEA Executive Director Fatih Birol said in a statement on Tuesday that member countries currently hold more than 1.2 billion barrels of public emergency oil reserves, plus another 600 million barrels in industry stocks held under government mandate.

Birol noted, "The oil market situation has clearly worsened over the past few days," singling out blocked transport routes and sharply reduced oil production as the two major issues. "This is creating significant and rising risks for the market," he said. "We discussed all available options, including opening up IEA emergency oil reserves to the market." Member countries are scheduled on Wednesday to decide whether to release emergency oil inventories.

On Wednesday, Germany’s economic minister confirmed that the IEA has asked member countries to release 400 million barrels of oil reserves. Germany will participate, although specific details remain undecided. On the same day, Japan's Prime Minister Sanae Takaichi, leader of the world's third largest strategic oil reserve holder, said Japan will independently release strategic oil reserves to counter the impact from war in the Middle East. The release could begin as soon as next Monday, March 16.

Signals of escalating conflict, continued tension in the Strait

Meanwhile, there are multiple signs of escalation in U.S.-Iran conflict. Reports say U.S. forces have sunk several Iranian vessels, including 16 minelayers, near the Strait of Hormuz. The United Kingdom Maritime Trade Operations (UKMTO) said on Wednesday three cargo ships near the Iranian coast were hit by projectiles, with one vessel inside the Strait of Hormuz struck.

Dubai authorities also confirmed that two drones crashed near Dubai International Airport on Wednesday, injuring four people and briefly closing the airspace nearby.

On Tuesday, U.S. Energy Secretary Chris Wright posted on social media claiming the U.S. Navy had escorted an oil tanker through the Strait of Hormuz, causing oil prices to slump sharply. However, White House Press Secretary Karoline Leavitt later clarified to the media that the U.S. Navy "is not currently escorting any tankers or ships," and oil prices recovered part of those losses.

Analysts: $100 oil risk depends on duration of the conflict

The consensus is that strategic reserve releases have limited effect, and the duration of the conflict is the core variable determining oil price trends. Marex’s Foss said bluntly that the IEA reserve release "can only buy a few days, but in reality, it all depends on whether the Strait of Hormuz can reopen."

Paul Gooden, Global Head of Natural Resources at asset management firm Ninety One, noted in a research report on Tuesday that, "If tensions ease in the next few weeks, oil prices may fall... but even so, prices are unlikely to return to the $60-$70 range seen earlier this year."

He further warned, "If supply disruption lasts longer, the consequences will be more severe—oil prices could soar further, potentially breaking through $120 or higher, until high prices start to suppress demand."

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