Oil prices extend losses as IEA weighs record emergency stock release

Global oil prices fell on Wednesday after reports said the International Energy Agency (IEA) was considering the largest strategic oil reserve release in history to ease supply risks arising from the conflict involving the United States, Israel and Iran, which continues to weigh on the global energy market.

Brent crude futures fell by 88 cents, or about 1%, to US$86.92 a barrel, while US West Texas Intermediate crude slipped by 35 cents, or 0.4%, to US$83.10 a barrel at around 11.58am Thailand time. Reuters reported slightly earlier levels of Brent at US$87.57 and WTI at US$83.08 at 0023 GMT, indicating continued volatility during Asian trading.

Earlier, US crude had jumped by about 5% at the market open after both major oil benchmarks had plunged by more than 11% on Tuesday, their sharpest one-day drop since 2022, after President Donald Trump predicted the war could end quickly. Reuters also reported that WTI had briefly surged above US$119 a barrel on Monday, the highest level since June 2022.

According to the reports, the IEA proposal could exceed the combined 182 million barrels that member countries released into the market in 2022 after Russia launched its invasion of Ukraine. Officials familiar with the matter said the measure was aimed at reducing pressure on global supply. An extraordinary IEA meeting was held, and a decision was expected unless objections from member states delayed the plan.

Analysts at Goldman Sachs said that a release on that scale could offset roughly 12 days of disrupted oil exports from the Gulf, based on estimates that exports could fall by as much as 15.4 million barrels per day.

Tensions in the Middle East remain high. Reports said the United States and Israel had carried out heavy air strikes on Iran, while US officials signalled that military operations were intensifying and the chances of diplomacy were slim.

At the same time, the situation around the Strait of Hormuz remains a central concern for the market. The White House has discussed options to maintain oil flows through the waterway, including possible naval escorts and support for war-risk insurance, although Reuters separately reported that G7 energy ministers stopped short of agreeing to an immediate reserve release and instead asked the IEA to study options first.

Analysts at UOB said oil prices were moving back towards more normal levels in a highly volatile way after the sharp spike earlier this week, with the market still watching developments in the Middle East closely to judge how long energy prices might remain elevated. This is a market inference consistent with the price swings reported by Reuters and others.

Meanwhile, G7 officials held talks on the possibility of releasing emergency oil reserves to calm market volatility, while French President Emmanuel Macron was set to host a video call with G7 leaders on Wednesday to discuss the effect of the war on energy security.

Some analysts remained sceptical about the IEA proposal. Reuters reported that no formal release had yet been announced, and questions remained over how quickly oil could actually be drawn down and delivered to the market even if the plan moved ahead.

Supply conditions also remain tight. Reuters reported that attacks on regional energy infrastructure, including the Ruwais refinery in the United Arab Emirates, had added to pressure on supplies. At the same time, Saudi Arabia has been trying to reroute more exports through Red Sea terminals, though this still falls short of fully replacing flows disrupted through Hormuz.

Consultancy Wood Mackenzie has estimated that the current war could cut oil and petroleum product supplies from the Gulf region by around 15 million barrels a day, potentially pushing global crude prices as high as US$150 a barrel if disruption persists.

Morgan Stanley has also warned that even if the conflict ends quickly, the global energy market could still face supply disruption for several more weeks.