Oil prices recovered on Wednesday, as markets doubted whether the International Energy Agency's plan for a record release of oil reserves would be able to offset potential supply shocks caused by the US-Israeli conflict with Iran, UNN reports with reference to Reuters.
Details
Brent crude futures rose 59 cents, or 0.7%, to $88.39 a barrel by 07:27 GMT (09:27 Kyiv time). US West Texas Intermediate (WTI) crude rose 98 cents, or 1.2%, to $84.43 a barrel.
Both contracts extended their decline in early Asian trading after plummeting more than 11% on Tuesday, despite a 5% jump in US oil prices at the market open.
The proposed IEA stock reduction will exceed the 182 million barrels of oil that IEA member countries released to the market in two stages in 2022, when Russia launched a full-scale invasion of Ukraine, the Wall Street Journal reported, citing officials familiar with the situation.
In a note to clients, Goldman Sachs analysts said that a release of reserves of this volume would offset 12 days of disruptions in oil exports from the Persian Gulf countries, which the investment bank estimated at 15.4 million barrels per day.
On Tuesday, the US and Israel launched strikes on Iran that the Pentagon and Iranians on the ground described as the most intense airstrikes of the entire war.
On Tuesday, the US military also "eliminated" 16 Iranian mine-laying vessels near the Strait of Hormuz, US Central Command said, while US President Donald Trump warned that any mines laid by Iran in the strait should be immediately neutralized.
Some analysts were skeptical of the IEA's proposal and its impact on oil prices.
"Such moves as the IEA's SPR (Strategic Petroleum Reserve) release are not a solution to the crisis. How oil prices will develop will depend on the duration of the war with Iran," said DBS energy sector group head Suvro Sarkar.
Short-term upside risks to prices will be "contained by periodic strategic signaling moves, similar to what we've seen in the last few days, to calm markets," Sarkar added.
G7 officials also met online to discuss a potential emergency oil reserve release to mitigate the market impact.
On Wednesday, French President Emmanuel Macron will hold a video conference with leaders of other G7 countries to discuss the impact of the Middle East conflict on energy and measures to resolve the situation.
Trump has repeatedly stated that the US is ready to escort tankers through the Strait of Hormuz if necessary. However, sources told Reuters that the US Navy has rejected requests from the shipping industry for military escort, as the risk of attacks is still too high.
According to a source, Abu Dhabi's state oil company ADNOC closed its Ruwais refinery due to a fire at a facility inside the complex after a drone strike. This was another instance of disruption to energy infrastructure due to the US-Israeli war against Iran.
Saudi Arabia, the world's largest oil exporter, is expected to increase shipments through the Red Sea, although, according to shipping data, they are still significantly below the levels needed to offset the reduction in oil flows from the Strait of Hormuz.
The Kingdom is counting on the port of Yanbu on the Red Sea to increase exports and avoid a sharp reduction in production, as its neighbors, Iraq, Kuwait, and the United Arab Emirates, have already cut production.
Consulting firm Wood Mackenzie said the war is currently reducing the supply of oil and petroleum products from Gulf countries to the market by approximately 15 million barrels per day, which could push oil prices to $150 a barrel.
"Even a quick resolution likely means several more weeks of disruption in energy markets," Morgan Stanley said in a note.
According to market sources citing American Petroleum Institute data released on Tuesday, US crude, gasoline, and diesel inventories decreased last week due to increased demand.