IEA Announces Largest Release of Reserves in History: Why Are Oil Prices Rising Instead of Falling? A Complete Explanation

On Wednesday, the International Energy Agency (IEA) member countries agreed to release 400 million barrels of strategic oil reserves, the largest joint release in history. Following this announcement, international oil prices did not fall but instead rose nearly 5% that day.

Logically, more oil entering the market should lead to falling prices. However, traders believe that this emergency release of oil reserves, amid the Iran conflict, is insufficient to offset the nearly halted oil flows through the Strait of Hormuz, disruptions in the Persian Gulf region’s production, and shortages in crude oil storage.

IEA Director Fatih Birol said on the 11th that 32 member countries of the IEA have agreed to release 400 million barrels of strategic oil reserves to address the risk of global energy supply disruptions caused by the war in the Middle East. He stated that the release of strategic oil reserves will be implemented in phases within an appropriate timeframe, based on each member country’s specific circumstances. The IEA will announce detailed plans for the release of the 400 million barrels later.

Affected by this news, both Brent and WTI crude futures initially declined but then quickly rebounded. On Wednesday, Brent crude rose 4.8%, closing at $91.98 per barrel; US WTI crude increased 4.6%, closing at $87.25 per barrel. Earlier this week, both surged close to $120 per barrel but then sharply retreated amid volatility, with a more than 11% plunge on Tuesday.

As an IEA member, Japan announced it will release its strategic oil reserves as early as March 16. Japanese Prime Minister Fumio Kishida said on Wednesday that, in coordination with the IEA, Japan will release oil reserves equivalent to 15 days of domestic consumption and reserves sufficient for one month of national supply.

On Wednesday, U.S. President Donald Trump discussed the use of the U.S. strategic oil reserve in an interview with a TV station in Ohio. He said, “We will reduce some reserves, which will help lower oil prices.” Additionally, during a speech in Kentucky, Trump described the IEA-coordinated record oil release as “significantly lowering oil prices.”

Insufficient release volume?

However, analysts and traders hold different views.

Josh Young, Chief Investment Officer at Bison Interests, an oil and gas investment firm, said that this decision is actually “extremely bullish” for oil prices because it weakens the market’s incentive to fill the supply gap, and if the Strait of Hormuz remains closed, the options to buffer supply losses will diminish.

Young pointed out that over the past 10 days, due to ongoing conflict, global daily oil supply has lost about 15 million barrels. In light of this, the oil released from reserves “will be insufficient to solve the problem, but it’s much better than doing nothing.”

Fawad Razaqzada, market analyst at StoneX, said, “From the oil price reaction, it seems the market has already priced in the release of 400 million barrels of oil. Prices hardly moved.”

He added, “Investors don’t seem to believe this move will have the desired effect; they probably think that oil transportation through the Strait of Hormuz will remain effectively shut for the long term.” He also mentioned that Iran has indicated it will shift from “tit-for-tat” retaliation to “chain retaliation.”

According to CCTV International, on March 11, Hatham Anbia, spokesperson for Iran’s Central Command, emphasized that any ships belonging to the U.S., Israel, or their partners, or carrying their oil cargoes, are considered “legitimate targets” for Iran’s armed forces. The spokesperson stressed that Iran’s previous “tit-for-tat” responses are over, and from now on, Iran will implement a “chain retaliation” strategy, no longer maintaining a one-to-one pace of revenge.

Michael Lynch, President of Strategic Energy & Economic Research, further analyzed the amount of oil involved in this conflict. He estimates that since the outbreak of conflict on February 28, Iran-related disruptions have resulted in a loss of approximately 175 million barrels of oil supply.

Lynch said that a small amount of oil still transits through the Strait of Hormuz, with about 1 million barrels per day exported via Saudi Arabia’s Yanbu port and the Red Sea.

Amin H. Nasser, CEO of Saudi Aramco, told investors during a conference call that the world’s largest oil company produces about 7 million barrels daily and plans to shift 5 million barrels to the Yanbu port in the Red Sea soon.

Lynch stated that as Yanbu’s oil exports increase, daily global supply will decrease by about 12 to 13 million barrels. Once the strait reopens, some of this supply will return to the market, but currently, these oils are being stored.

Moreover, storage space is nearing capacity. Lynch estimates that due to lack of storage, at least 5 million barrels of daily production have been shut down. He pointed out that production cuts will intensify over time, potentially reaching 8 to 10 million barrels per day soon.

He said the IEA’s release of reserves aims to compensate for these supply losses and “prevent panic and hoarding behaviors.” However, he added that this release amount “only supports a little over three weeks of war.”

Therefore, combined with news that Iran has begun laying mines in the Strait of Hormuz, “the market believes this release is sufficient for now, but just barely,” Lynch said. “This may at least give some bullish sentiment to oil prices.”

Raymond James investment strategist Pavel Molchanov said before the IEA officially announced the release that the key issue is how long this conflict will last. He stated that if the conflict continues well beyond March, IEA member countries might need to release over 400 million barrels.

According to CCTV News, U.S. President Trump on March 11 said that there are “almost no targets left to strike” inside Iran, and that U.S. military actions against Iran are “coming to an end.”

However, Israeli and U.S. officials have indicated they are preparing for at least two more weeks of continued strikes against Iran.