IEA members agree 60mn-barrel oil release in response to Ukraine war

The US and other big energy consuming nations have agreed to tap 60mn barrels of oil from their emergency stockpiles to address fears over depleted supplies since Russia invaded Ukraine, a concern underlined by a mammoth rise in the price of crude on Tuesday.

The International Energy Agency said that the co-ordinated release, the fourth in its history, would send a “unified and strong message to global oil markets that there will be no shortfall” because of the invasion. The body will consider “possible additional emergency oil stock draws, as needed”, it added.

But rather than calm prices, the announcement triggered further gains, with Brent crude, the international oil marker, rising by almost 10 per cent to a fresh eight-year high above $107 a barrel before pulling back. West Texas Intermediate, the US oil benchmark, climbed by more than 10 per cent to $105 a barrel.

As European refineries balk at buying its oil, Russia’s flagship Urals crude has been trading at a record discount of more $11 a barrel to Brent.

Amrita Sen of Energy Aspects, a consultancy, said the market had been “underwhelmed” with the reserve release and that traders had been expecting a bigger number given the disruption to Russian energy exports caused by the broadside of western sanctions on Moscow.

She said that as much as 70 per cent of the country’s oil exports were “not finding a home at the moment”. Many western banks and shipowners were refusing to handle Russian crude either to reduce legal or reputational risk, according to traders.

Russia is the world’s third-largest crude producer and the second-biggest exporter, sending about 5mn barrels a day to global markets.

Officials in the Biden administration have said they want to try to ensure that Russian energy continues to flow to minimise domestic economic damage from sanctions. Half of the IEA’s co-ordinated oil release, or 30mn barrels, will come from the US’s strategic petroleum reserve, said Jennifer Granholm, US energy secretary.

The US previously announced the release of 50mn barrels of oil from its strategic reserve to try to ease rallying oil prices late last year, in conjunction with a smaller group of other countries.

However, as the oil makes it way through the US system there is only limited spare capacity — an estimated 150,000 b/d — to move more volumes, said Sen. This will remain the case until the previous strategic reserve release is completed in June.

Tuesday’s IEA announcement came on the same day that members of the Opec+ alliance of oil exporters, which includes Russia, gathered for the first time since Moscow launched its invasion of Ukraine last week. But the group, which has struggled to keep up with its own production targets, has signalled that it does not intend to accelerate planned output increases in response to higher prices.

“Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery,” said Fatih Birol, the IEA’s executive director.

The IEA’s 60mn barrel release accounts for about 4 per cent of members’ 1.5bn barrels of total emergency stockpiles, the group said. World oil demand is about 100mn b/d.

Founded after the Arab oil embargo in 1973-74, the IEA is made up of 31 member countries across Europe, North America and Asia and represents the interests of major energy consumers. The group’s previous co-ordinated release was in 2011 when supplies were disrupted by the Libyan civil war.

The agency said that its governing board “encouraged each member country to do its utmost to support Ukraine in the supply of oil products, recommending that governments and consumers maintain and intensify conservation efforts”.

IEA members also discussed Europe’s reliance on natural gas from Russia. On Thursday, the agency said it would release a “10-point plan for how European countries can reduce their reliance on Russian gas supplies by next winter”.