Ahead Today
G3: US Initial Jobless Claims
Asia: India CPI
Market Highlights
Brent oil prices fluctuated and rose above the US$90/bbl mark, while risk sentiment took some hit, and this came despite the announcement of oil reserves release by the International Energy Agency. Oil prices also rose as reports suggest Iraq’s oil ports have completely stopped operations due to targeting of two tankers within Iraq’s waters. In particular, the IEA agreed to discharge 400 million barrels from emergency oil reserves, its largest-ever release, in order to help contain a price spike driven by the Middle East war. For context, this number far exceeds the 183 million barrels that member states released in 2022 after Russia invaded Ukraine. The exact details around the pace, duration and location of the planned releases have not been announced, but there are some initial details around country allocation. Japan said it would release 80 million barrels, the UK will contribute 13.5 million, Germany about 19.5 million, France about 15 million while South Korea plans to release 22.5 million barrels. Meanwhile, the US administration plans to release 172 million barrels, and said this will be released over 120 days.
The details of the pace of release will be crucial to gauge the market impact, but ultimately the disruption from the Strait of Hormuz is so large that it dwarfs the oil reserve release. To put the 400 million barrels in context, it makes up around just 4 days of total daily global demand for oil. In addition, when compared with the Strait of Hormuz where 20% of global seaborn oil passes through daily (~20mn barrels/day), and where there is significant disruption still, it is difficult to replace this longer-term. This is not to say the release will not have any impact. The key here will be the pace. Assuming a 6 month scenario for the release, this would imply around 2m barrels/day of oil (again relative to 20mn in the Strait of Hormuz). In contrast, if we assume a 1-month scenario of shortened but substantial release, this would imply 13mn barrels/day – potentially enough to cover the disruption from the SoH. Nonetheless this comes with the risk of reducing the buffer for the future especially if the Middle East crisis remains prolonged.
If we assume that the other IEA members follow the US administration’s announced plan to release oil reserves over 120days, this would imply daily flow of 3.3 million barrels a day from the 400 mn barrels release, still not entirely enough to cover the possibly 10-13mn barrels/day shortfall from the Strait of Hormuz (and after accounting for pipelines to divert oil supply away from SoH such as Saudi Arabia’s East West pipeline).