Oil prices trimmed their increases on Thursday after Brent crude briefly reached $100 a barrel, as assaults were reported on three additional cargo vessels in the Persian Gulf and traders responded to the IEA’s initiative to release governmental reserves.
International standard Brent crude futures for May delivery traded 6.8% higher at $98.19 per barrel around 9:25 a.m. London time (5:25 a.m. ET), while U.S. West Texas Intermediate futures for April delivery increased 6.4% to $92.85.
Three foreign vessels were targeted off the shores of Iraq and the UAE overnight, according to officials, marking the latest in a series of events in or near the crucial Strait of Hormuz.
One container vessel was hit by an unidentified projectile close to the port city of Jebel Ali on Thursday, the United Kingdom Maritime Trade Operations (UKMTO) center reported, while two oil tankers were set ablaze in Iraqi waters after being struck near the port of Umm Qasr, close to Basra.
The news arrives shortly after the IEA revealed its largest emergency release of crude reserves ever recorded.
“The pressing inquiry is, why is the market increasing despite this significant release? First, there are no indications of de-escalation in the Persian Gulf, so an end to the disruptions in oil flow through the Strait of Hormuz isn’t visible,” strategists at Dutch financial institution ING mentioned in a research report released Thursday.
“As we’ve stated multiple times, the only means to observe oil prices consistently decline is by enabling oil to flow through the Strait of Hormuz. If that does not occur, it means market highs are still ahead,” they concluded.
The IEA’s decision also indicates the severity of the risk of an oil shortage, implying the IEA does not foresee the conflict ending in the near future.Saul KavonicMST Marquee
The IEA stated on Wednesday that its 32 member nations would release 400 million barrels of oil from emergency reserves, marking the largest coordinated drawdown since the agency’s establishment in response to the 1973 oil embargo.
The United States declared it would release 172 million barrels from its Strategic Petroleum Reserve, with Energy Secretary Chris Wright indicating shipments might commence next week and take approximately 120 days to finish.
The oil market has largely dismissed these announcements as prices continue to escalate, showcasing traders’ doubts that the measures could resolve the supply deficit if flows through the Strait of Hormuz remain interrupted.
“Current prices reflect a state of panic. There’s a considerable amount of emotion, fear, and uncertainty reflected in the prices we observe,” stated Pavel Molchanov, senior investment strategist at Raymond James.
The unprecedented IEA strategic stock release will contribute some essential volumes to the market, though it will only cover a portion of the 20 million barrels per day supply gap caused by the closure of the Strait of Hormuz, according to Saul Kavonic, energy analyst at MST Marquee.
“However, the IEA’s resolution also underscores the critical risk of oil shortages, suggesting the IEA does not foresee a quick resolution to the conflict, and current stock draws will need to be replenished later, suggesting higher prices even after the conflict concludes,” he shared with CNBC.
Approximately a fifth of global oil production transits through the Strait of Hormuz, connecting the Persian Gulf to worldwide markets.
Uncertainty surrounds timing and logistics
A major reason for market anxiety is the unpredictability regarding how soon the barrels will be available, as stated by industry experts.
While the IEA’s declaration represented an unprecedented intervention, the agency did not specify how rapidly individual nations will disseminate their reserves or the methods for oil distribution.
“That’s one of the primary uncertainties, which is how long will it take for the 400 million barrels to be physically supplied to the market,” noted Molchanov.
“Four hundred million is a substantial figure … but this is the most significant oil supply disruption since at least the 1970s, so we need a lot of oil, and we need it promptly,” he remarked.
Strategic reserves are maintained separately by each IEA member nation, which means technical and logistical challenges could delay the movement of barrels.
Molchanov estimated it might take 60 to 90 days before the oil significantly enters the market, which is longer than traders had anticipated for prompt relief.
