Oil prices extended their fall below $90 per barrel after the Wall Street Journal reported the International Energy Agency has proposed the largest release of oil from its reserves.
At the time of writing, the price of West Texas Intermediate crude oil was at $83.01 per barrel, down 0.5%, while Brent was at $86.85 per barrel, down 1.1% from the previous close.
The Wall Street Journal, citing officials familiar with the proposal, reported that the IEA is considering a drawdown of oil reserves that would surpass the 182 million barrels released by member countries in two separate releases in 2022.
That 2022 action was a response to Russia's full-scale invasion of Ukraine.
The IEA scheduled an extraordinary meeting of its members for Tuesday to discuss the proposal, with a decision expected the next day, according to the newspaper.
The plan required unanimous consent for adoption; a single objection from any country, however, could delay the initiative.
Meanwhile, on Tuesday, G7 energy ministers deferred a decision on releasing strategic oil reserves, instead tasking the IEA with assessing the situation.
Market deficit and limits to supply increase
“This is the major difference to the current situation, as diverting oil from the Gulf region is only possible to a limited extent,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.
The market is currently experiencing a significant deficit, with a shortfall still reaching as much as 15 million barrels per day, according to the German bank.
A temporary solution to the supply gap, until oil transport resumes through the Strait of Hormuz, is the release of oil from strategic reserves.
“However, it is questionable whether releasing strategic oil reserves would have the same price-dampening effect as it did four years ago if the Strait of Hormuz remains closed for an extended period of time,” Fritsch argued.
OECD countries held 1.25 billion barrels in government-controlled oil reserves by the close of 2025, based on data provided by the International Energy Agency.
Total oil reserves amounted to 1.25 billion barrels, comprising 933 million barrels of crude oil and 311 million barrels of oil products.
The bulk of the crude oil reserves is situated in the US and the Asia/Oceania region, while Europe holds the majority of the product reserves.
OECD countries' industry holds an additional 2.84 billion barrels, bringing the total theoretical reserve to approximately 4 billion barrels.
This quantity could cover the aforementioned shortfall for about nine months.
According to the US Energy Information Administration (EIA), the US imported less than 500,000 barrels of crude oil per day from the Persian Gulf region last year.
Other stocks, in addition to the existing reserves, are potential sources of supply.
For instance, Indian refineries have received a 30-day US waiver allowing them to buy Russian oil currently stored in tankers.
Furthermore, China has the option to utilise the substantial stocks it accumulated last year.
A significant increase in oil production is unfeasible because the required spare capacity is almost entirely confined to countries currently unable to access the global market in the Middle East due to the shipping blockade through the Strait of Hormuz, forcing them to reduce output, Commerzbank noted.
“An expansion of oil production in other countries is only possible to a limited extent, if at all, for example in Venezuela,” Fritsch said.
“But here too, restricted production capacity does not allow for a significant increase in supply.”
Geopolitical fallout and price volatility
The week began with a volatile swing in oil prices.
Trading opened on Monday with a surge of over 20%, pushing the price to $120 per barrel. This marked the highest level for oil since June 2022.
The contracts experienced a dramatic reversal, plunging over 11% on Tuesday—their sharpest percentage decline since 2022.
Meanwhile, late on Tuesday, the US and Israel carried out what the Pentagon described as the most intense airstrikes of the war against Iran.
Simultaneously, the US Central Command reported that the American military "eliminated" 16 Iranian mine-laying vessels near the Strait of Hormuz.
Following this action, US President Donald Trump issued a warning, demanding the immediate removal of any mines laid by Iran in the Strait.
Despite Trump's repeated statements that the US is ready to escort tankers through the Strait of Hormuz when needed, a Reuters report indicated that the US Navy has declined requests for military escorts from the shipping industry.
This refusal is reportedly due to the currently elevated risk of attacks.
Wood Mackenzie, an energy consultancy, stated that the war is currently reducing Gulf oil and oil product supply to the market by roughly 15 million barrels per day.
This reduction could potentially drive crude prices up to $150 per barrel.
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