IEA Proposes Massive Release of Emergency Oil Stockpiles

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(Bloomberg) — The International Energy Agency is proposing a release of emergency oil reserves that would be the largest in its history, with a decision possible later on Wednesday, according to a person familiar with the matter.

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The IEA has suggested a release in the range of about 300 million to 400 million barrels, the person said, asking not to be identified discussing private deliberations. The Paris-based agency co-ordinates stockpile releases for OECD nations.

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Governments are seeking to contain a spike in energy prices driven by the Middle East war. Oil soared to almost $120 a barrel in London on Monday as flows through the Persian Gulf’s critical Strait of Hormuz remained essentially halted, though futures have since eased significantly — in part on expectations that governments would tap their oil reserves.

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A meeting of G-7 leaders on Wednesday will discuss the stockpile release, French Finance Minister Roland Lescure said separately. The Group of Seven nations have said they support, in principle, “proactive measures” including the release of strategic reserves, but haven’t provided details on the scale of a potential intervention.

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The IEA didn’t immediately respond to a request for comment.

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The move under consideration would exceed the 182 million barrels that IEA members put into the market in 2022 after Russia invaded Ukraine. The Wall Street Journal earlier reported plans for a record intervention. 

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The IEA has said its 32 members hold more than 1.2 billion barrels in public emergency stockpiles, including the largest buffer, the US Strategic Petroleum Reserve. They have a further 600 million barrels of industry stocks under government obligation.

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Production Cuts

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Saudi Arabia, the United Arab Emirates and Iraq are among producers deepening oil supply cuts, shaving about 6% off global output, as the loss of transit through Hormuz causes the region’s storage tanks to fill up. The UAE also halted operations at its biggest refinery, Ruwais, on Tuesday as a precaution after a drone strike in the area.

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Some traders and analysts doubt that consumer governments will be able to tap inventories quickly enough to fill the yawning supply gap.

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Even if the US SPR’s maximum drawdown rate is coupled with flows from other IEA members, it might cover just a portion of the 11 million-to-16 million barrels of supply from the Persian Gulf that Citigroup Inc. estimates is being lost each day. 

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The maximum drawdown capability of the US SPR is 4.4 million barrels a day, according to the Energy Department’s website, and it takes 13 days for SPR oil to reach the open market after a presidential decision. 

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The IEA has previously helped implement five such interventions: in the buildup to the 1991 Gulf War, after hurricanes Rita and Katrina in 2005, following the outbreak of civil war in Libya in 2011, and twice in 2022 in response to disruptions connected to the war in Ukraine.

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(Updates with concern over speed of stockpile releases starting in ninth paragraph.)

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