Countries agree on historic release of crude reserves to lower oil and gasoline prices

By Hanna Ziady, CNN

London (CNN) — Member countries of the International Energy Agency unanimously agreed Wednesday to release 400 million barrels of oil into the global market – the largest release of emergency oil stocks in history – in a drastic move aimed at shoring up crude supplies and capping a surge in prices caused by the conflict in the Middle East.

“IEA countries will be making 400 million barrels of oil available… to the market to offset the supply lost through the effective closure of the Strait (of Hormuz),” IEA executive director Fatih Birol said in a live broadcast.

“This is a major action aiming to alleviate the immediate impacts of the disruption in markets. But, to be clear, the most important thing for a return to stable flows of oil and (natural) gas is the resumption of transit through the Strait of Hormuz,” Birol added.

The record 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, an IEA member, then sold a further 180 million barrels from its Strategic Petroleum Reserve over a six-month period that year.

Despite the eye-catching size of the latest agreed release, the move may do little to offset 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 near-blockade means that some 15 million barrels of crude oil and 5 million barrels of other oil products are choked off from global markets every day, according to Birol. In other words, 400 million barrels of crude would be absorbed in just 26 days.

That would fall short of compensating for lost supply and leave “few options to tame prices,” Amrita Sen, the founder of market intelligence firm Energy Aspects, wrote in a note.

Indeed, the IEA announcement has done little to dampen oil prices.

Brent crude, the global oil benchmark, was up 4% to around $91 a barrel after Birol spoke. WTI, the US benchmark, rose by a similar margin to trade around $87 a barrel.

It’s also unclear to what extent the release of oil reserves will help meaningfully cut retail fuel prices. The combined release of US and international reserves in 2022 only shaved about 17-42 cents off the price of a gallon of gasoline in the United States, according to an estimate by the US Treasury Department.

For context, the average US price of a gallon of gasoline has risen 60 cents to $3.58 since the United States and Israel attacked Iran on February 28, according to the American Automobile Association.

Reserves ‘not a bazooka’

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 seesaw

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.

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