Historic release of crude reserves recommended to lower oil and gasoline prices

By Hanna Ziady, CNN

London (CNN) — The International Energy Agency has advised member countries to release 400 million barrels of oil into the global market – the largest release of strategic petroleum reserves in history – in a drastic move aimed at shoring up crude supplies and capping a surge in prices caused by the latest turmoil in the Middle East.

Germany’s economic affairs and energy ministry confirmed the IEA request Wednesday in a post on X and said the country would comply by releasing its share of the reserves. Austria and Japan will also take part, according to Reuters.

The record recommended amount far surpasses the 182 million barrels of oil that countries put onto the market in two tranches in 2022 when Russia launched its full-scale invasion of Ukraine. The United States sold a further 180 million barrels from its Strategic Petroleum Reserve that year.

Despite the eye-catching size of the latest recommended release, the move, if agreed by all IEA member countries, may do little to offset what amounts to an even bigger oil supply shock from a near-shutdown of the Strait of Hormuz – ordinarily the conduit for around a fifth of daily global oil production but currently impassable to tankers due to safety concerns.

The Group of Seven major industrialized nations are expected to decide on the proposal later on Wednesday, the Wall Street Journal has reported, citing unnamed officials familiar with the plan.

The release would “pale” in comparison with the approximately 15 million barrels a day of crude and other oil products “trapped within the Strait of Hormuz,” Amrita Sen, the founder of market intelligence firm Energy Aspects, wrote in a note. Other estimates put the blockaded amount at 20 million barrels a day.

Sen added that 400 million barrels “would be absorbed in just 25 days,” falling short of compensating for lost supply and “leaving few options to tame prices.”

Indeed, media reports of the IEA recommendation, which came ahead of the official announcement, have done little to dampen oil prices.

Brent crude, the global oil benchmark, was up 2.6% to around $90 a barrel. WTI, the US benchmark, gained more than 2% to trade around $85 a barrel.

The release of oil reserves would be “a temporary measure, and only military de-escalation can drive crude sustainably lower,” Francesco Pesole, a strategist at Dutch bank ING, wrote in a note.

The prospects for reopening the vital Strait of Hormuz look even more distant, however, with Iran now laying mines in the vital waterway, two people familiar with US intelligence reporting on the issue told CNN. Although the mining is not yet extensive, Iran is believed to have around 6,000 naval mines in its possession, a report from the US Congress published last year shows.

“Iran’s success in laying mines in the Strait has taken the crisis into a new dimension,” Ben Emons, the chief investment officer at FedWatch Advisors, wrote in a note.

“With a material military campaign shift, Iran’s chokehold on the Strait will intensify, with potentially more mines, given its capabilities. That is why the oil market views the IEA’s 400 million-barrel release as a water pistol, not a bazooka,” he added.

Oil prices have been on a rollercoaster over the past 48 hours. On Monday, both Brent and WTI surged above $100 a barrel for the first time in almost four years, only to plunge the following day. Brent crude settled more than 11% lower Tuesday, from the previous day’s close, at $87.80 a barrel – its largest one-day decline since March 2022.

That drop was largely driven by earlier comments from US President Donald Trump that the war would be over “very soon,” as well as an announcement by Saudi Aramco, the world’s top oil producer, that it would ramp up crude flows via its pipeline to the Red Sea port of Yanbu, allowing it to resume 70% of its usual oil shipments.

Iran said early Wednesday that it had launched its “most intense and heaviest operation” since the start of the war, according to state media, while Israel announced an additional wave of strikes on Tehran.

Also on Wednesday, three vessels were reported to have been hit by unknown projectiles near the Strait of Hormuz, according to the UK maritime agency.

The near-blockade of the waterway has caused crude prices to soar, with Brent still about 23% above the $73 level it was trading at before the United States and Israel attacked Iran on February 28. WTI is trading about 28% higher.

“Strategic reserves are arguably designed to be a cushion rather than a total offset during crises,” Hamad Hussein, climate and commodities economist at consultancy Capital Economics, said in a note. “Opening the Strait of Hormuz is key to sustainably bring energy prices down.”

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CNN’s Natasha Bertrand, Sophie Tanno and Maisie Linford contributed reporting.