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The United States and other member states of the International Energy Agency (IEA) on Tuesday agreed to release 60 million barrels of oil reserves to compensate for supply disruptions following Russia’s invasion of Ukraine.
Russian oil trade is in disarray after many nations imposed sanctions on Russian companies, banks and individuals. Oil trade is exempt from sanctions but buyers are shunning Russian oil to avoid unwittingly violating sanctions.
News of the IEA release did nothing to stop a rally on crude futures as investors priced in increasing disruption to supplies. Brent crude rose $7 per barrel to close at $104.97, the highest since 2014.
Half of the planned release will come from the United States, the U.S. Energy Department said after the extraordinary ministerial meeting of the 31 members of the IEA, which represents mostly industrialized nations.
“We are prepared to use every tool available to us to limit disruption to global energy supply as a result of President Putin’s actions,” White House Press Secretary Jen Psaki said in statement after the IEA meeting, referring to Russia’s Vladimir Putin.
IEA Executive Director Fatih Birol said the current situation in energy markets is “very serious and demands our full attention”.
“Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery,” Birol added in a statement, which said member states would consider tapping stocks further as needed.
The precise share of member countries in the release will be determined in coming days, Japanese industry minister Koichi Hagiuda said, while some IEA members agreed to provide petrochemical products to Ukraine.
Further disruption of exports from Russia could send prices even higher. Russia, which calls its actions in Ukraine a “special operation,” is one of the world’s top oil producers, exporting around 4-5 million barrels per day (bpd) of crude. Russia also exports 2 to 3 million bpd of fuel.
The 60 million barrels represent 4% of the 1.5 billion barrels of emergency stockpiles held by IEA members, the agency said, and is equivalent to 2 million barrels a day for 30 days.
“The release of the reserves is notable, but as we saw back in November, it’s just not viewed as a kind of game-changer in any way,” said Craig Erlam, senior market analyst at OANDA, referring to an earlier stocks release led by the United States. “The political risk premium of a crisis involving one of the world’s top oil producers is just too high.”
SUPPLY DISRUPTIONS
U.S. Energy Secretary Jennifer Granholm chaired the meeting of the Paris-based IEA, which has coordinated three emergency oil stock releases in the past.
Founded in 1974 as an energy watchdog, the IEA defines one of its main roles as helping “coordinate a collective response to major disruptions” in the oil supply.
Last November, the United States announced a release of 50 million barrels from the U.S. Strategic Petroleum Reserve, a move it said was made in concert with oil-consuming nations including China, India and Japan to bring down high oil prices.
China, the world’s No. 2 consumer and largest importer, never officially committed to that coordinated release, and has instead been buying more for its reserves.
The IEA did not oversee that operation, saying at the time it only responds collectively to major supply disruptions. The IEA last coordinated a release amid the oil supply disruption caused by the Libyan civil war in 2011.
U.S. President Joe Biden has faced criticism from political opponents who say his climate-friendly policies have harmed U.S. energy production and driven up energy prices.
The United States is responsible for about half of the world’s strategic petroleum reserves. The other 29 IEA members – including the United Kingdom, Germany, Japan and Australia – are required to hold oil in emergency reserves equivalent to 90 days of net oil imports.
Japan has one of the largest reserves after China and the United States.
