IEA will deploy emergency oil stocks to ease soaring prices

The International Energy Agency, which represents key industrialized consumers, will deploy 60 million barrels from stockpiles around the world. Half of that amount will come from the U.S. Strategic Petroleum Reserve, with the rest from IEA members in Europe and Asia, said a person familiar with the matter, who asked not to be named because the information isn’t public.

That will be the second release from American crude reserves within a few months as soaring fuel costs become a growing political problem for President Joe Biden. News of the stockpile release did nothing to cool the price rally on Tuesday, with West Texas Intermediate closing up 8% in New York and then rising even further at the open in Asia.

“The situation in energy markets is very serious and demands our full attention,” IEA Executive Director Fatih Birol said in a statement on the agency’s website. “Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery.”

The IEA said it will continue to monitor energy markets and could recommend additional stockpile releases if need.

A release of 60 million barrels, while significant, only equates to less than two-thirds of global daily consumption of around 100 million barrels. The international release late last year included 50 million barrels from the U.S. but only relatively small contributions from other countries. While oil prices fell in the run-up, they actually rose when it was officially announced in late November

Crude prices have climbed above $105 a barrel in London for the first time since 2014 on fears that oil and gas supplies from energy giant Russia could be disrupted, either by the conflict in Ukraine or retaliatory sanctions. The rally is exacerbating an inflationary surge for energy-consuming nations, threatening the economic recovery and worsening a cost-of-living crisis for millions.

Russia’s aggression has spooked a market already tightened by a vigorous recovery in demand as the pandemic eases, and constraints on supply owing to underinvestment and disruptions around the world. Trading giants Vitol Group and Trafigura Ltd. expect triple-digit prices to continue for a prolonged period.

The IEA’s intervention comes after the OPEC+ coalition, which is led by Saudi Arabia and Russia, disregarded encouragement from Biden last year to increase supplies more quickly. The group meets again on Wednesday to discuss its production plans for April.

Riyadh has signaled that it doesn’t consider markets to be tight enough to speed up the restoration of production that the Organization of Petroleum Exporting Countries and its partners halted during the pandemic. Many other nations in the 23-member alliance couldn’t increase supplies any faster even if they chose to, owing to lack of investment and instability.

Surging gasoline prices are a particular risk for Biden, who faces midterm elections with slipping approval ratings. He already failed to tame fuel costs with release of crude from emergency stocks announced last year. Traders said that initiative was undermined by its limited scope, with most of the barrels being offered on condition of later return.

It’s the first time the IEA has made a synchronized release of oil stocks since the Libyan civil war in 2011. There are echoes of that crisis in today’s events: It was Riyadh’s reluctance to open the taps a decade ago to offset the disruption caused by the uprising against dictator Moammar Qaddafi that prompted the agency into action.

Previous deployments came during the 1991 Gulf War, and the onslaught of hurricanes Rita and Katrina in 2005, making this just the fourth such intervention in the IEA’s five-decade history.

The IEA’s 30 members, drawn from the Organization for Economic Cooperation and Development, include the U.S., Japan, Germany and France. There are also eight association countries, including China and India, although it’s not clear if they will be involved in the release.

The volume of oil released by each of the participating countries will be determined in the coming days, Hidechika Koizumi, director of international affairs division at the Japanese trade ministry, said in a press briefing.