The devil is in the details! "The largest crude oil reserve release in history": Not only is the scale not large enough, but the speed can't pick up either.
The IEA announced the largest release of strategic oil reserves in history, but the market quickly realized: what truly determines oil prices is not "how much is in reserve," but "how much can be released every day."
According to CCTV News, the International Energy Agency (IEA) announced on the 11th that 32 member countries have agreed to release 400 million barrels of strategic oil reserves.
From the numbers, this is the largest collective release action in IEA history. After the Russia-Ukraine conflict in 2022, IEA member countries released about 183 million barrels in total over two rounds, but this time the scale has directly doubled. According to reports, many countries have disclosed their respective contributions:
United States: 172 million barrelsJapan: about 80 million barrelsSouth Korea: 22.5 million barrelsGermany: about 19.5 million barrelsFrance: up to 14.5 million barrelsUnited Kingdom: 13.5 million barrels
(Chart: Reserve amounts of IEA member countries)
However, for the energy market, the truly critical information has yet to be disclosed— including the pace of releases, duration, and the ratio of crude oil to refined products. These details are often more important than the total volume itself.
Judging from the market reaction, traders are clearly waiting for this information. After the news was released, oil prices briefly fell to about $83, but quickly rebounded, with WTI crude returning above $90.
The Real Issue: Not Inventory, but Supply "Flow"
To understand why the market is indifferent to the release of 400 million barrels, it's crucial to clarify the fundamental difference between "stock" and "flow". The anchor for pricing in the commodity markets is the actual daily spot supply and demand, rather than the static inventory numbers.
The current surge in oil prices is against the backdrop of almost halted transport in the Strait of Hormuz.
This strait accounts for about 20% of global oil transport. As the war escalates, large quantities of crude oil from the Persian Gulf cannot be exported normally.
Data from Citigroup and JPMorgan shows, the blockade of the strait has caused a global daily loss of up to 11 to 16 million barrels of oil supply. In other words, the global oil market suddenly lost a supply source equivalent to the scale of Saudi production.
Therefore, the core problem is not whether the world "has oil".
IEA member countries have over 1.2 billion barrels in public strategic reserves, and about 600 million barrels of corporate inventories under government supervision. From an absolute standpoint, inventories are not scarce.
(As of now, OECD’s total strategic oil reserves are 1.247 billion barrels, including 935 million barrels of crude oil and 312 million barrels of refined products)
The real issue is oil cannot flow from production sites to the market.
A commodities analyst summed it up in one sentence:
“This is a flow problem, not an inventory problem.”
Reserve releases can increase supply from inventory, but cannot substitute for the global oil trade completed by sea every day.
Put simply, if the 400 million barrels released by IEA member countries can't be converted into daily market flow fast enough, they can't fill the massive gap of 16 million barrels per day.
Release Speed Is the Key Variable Determining Oil Prices
In this context, the market is most concerned about one issue: How quickly can these reserves actually enter the market?
Kpler senior analyst Homayoun Falakshahi bluntly said: “The devil is in the details, the key issue is the release speed.”
Currently the IEA has not announced a unified release pace, only stating that members will arrange schedules according to their own situations.
Major commodity traders privately estimate that the actual rate at which these reserves hit the market is only between 1.2 million and 4 million barrels per day.
JPMorgan's head of commodities market strategy, Natasha Kaneva, has even more pessimistic calculations: The actual coordinated G7 release rate can reach a maximum of only 1.2 million barrels per day.
At this rate, even if all 400 million barrels are released, it would take close to a year.
US Strategic Petroleum Reserve: Largest, but Also Clearly Limited
In this action, the US is expected to bear the largest share.
US Energy Secretary Chris Wright stated that the US will release 172 million barrels of strategic oil reserves, with the entire release process expected to last about 120 days.
In an interview, he said: “This is to buy time for the world during the supply disruptions caused by Iran.”
But the US Strategic Petroleum Reserve (SPR) also faces practical limitations.
Currently, the US SPR is about 415 million barrels, only around 60% of its maximum storage capability. After releasing 180 million barrels post-2022 Russia-Ukraine conflict, inventory has notably decreased.
Theoretically, the maximum SPR release capacity in the US is about 4.4 million barrels per day. But a 2016 Department of Energy assessment found that actual sustainable release capacity is only between 1.4 million and 2.1 million barrels per day.
Actual release rates in 2022 did not exceed 1.1 million barrels per day.
Lethal Time Lag
Distant water can't put out a nearby fire. Besides slow speed, the reserve release faces huge time delays.
From policy implementation to spot circulation requires a complex commercial process. When the US president orders a reserve release, the Department of Energy requires about 13 days to bid, award, and begin delivery. Then, crude oil needs to be transported via pipeline or tanker to refineries and end-users.
This means, even if the reserve release is initiated immediately, SPR oil would only effectively enter the market by late March. During this period, the daily supply gap of 16 million barrels continues to accumulate. JPMorgan expects by the end of March, the accumulated deficit in crude oil caused by geopolitical conflict will exceed 100 million barrels. A mere 1.2 million barrels per day is a drop in the bucket.
Even more deadly, the effects of the Strait of Hormuz blockade are feeding upstream. With oil unable to be transported, storage tanks in Persian Gulf producing countries are rapidly filling up. Once tanks reach their limit, producers will be forced to shut down wells.
Bloomberg's latest data shows that major producing countries—Saudi Arabia, UAE, Iraq, and Kuwait—have already started large production cuts, shutting down a combined 6.7 million barrels per day, about 6% of global output. Moreover, every extra day the strait remains blocked, this number will keep rising. This directly turns a logistical problem into one of capacity destruction.
To the Market, More Like a "Stabilization Signal"
From an investor perspective, this IEA action is more like a policy stabilization signal.
On one hand, it conveys the attitude of major consumer countries banding together to intervene in energy prices, attempting to suppress risk premiums.
On the other hand, it buys the market time— waiting for the resumption of shipping in the Strait of Hormuz.
But if the strait blockade continues, reserve releases will hardly fill the supply-demand gap.
As one energy trader put it:
“Strategic reserves can buffer shocks, but cannot substitute for normal global oil trade.”
Therefore, for the market, the real significance of this record-setting release plan still depends on one issue:
When the Strait of Hormuz will resume navigation.
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