Strategic Oil Reserves Put in Play

3/2/2022

Energy

0 min read



  Image: Jennifer Granholm, US DOE

The International Energy Agency Takes Steps to Put a Ceiling on Oil Prices

As a proactive step to prevent oil price increases from further dampening global economic growth and household budgets, the International Energy Agency (IEA) has agreed to a coordinated and strategic release of 60 million barrels of its oil stockpiles, according to its press release. Half of the 60 million barrels to be spread to various countries will come from the U.S. Strategic Petroleum Reserve, with the rest from Europe and Asia.

The U.S. portion of the petroleum release represents approximately 5% of the country’s reserves. It is the second time the U.S. has dipped into its petroleum stockpile during the year the Biden administration has occupied the White House.

About the IEA

The IEA is made up of 30
member countries. It was created during the oil crisis in 1974 to help coordinate a collective response to major disruptions in the supply of oil. Over the years, the agency has evolved, but petroleum remains a key aspect of its work. Additionally, the IEA has evolved and expanded significantly, taking an “all-fuels, all-technology” approach. Today the IEA recommends policies that enhance the reliability, affordability, and sustainability of energy. It looks at the full spectrum of issues, including renewables, oil, gas, and coal supply along with demand, energy efficiency, clean energy technologies, electricity systems and markets, access to energy, demand-side management, and others.

The IEA’s decision to tap oil reserves represents its first release since the Libyan civil war eleven years ago. Prior to that, the IEA released oil reserves during the 1991 Gulf War and the 2005 hurricane season that included Hurricane Rita and Katrina.

Market Reaction

Despite the additional supply soon to hit world markets, Brent and WTI crude oil is still surging and at over $100 per barrel the commodity has surpassed its highest price since 2014. Around the world, this increase in energy costs is adding to inflationary pressures.

Historical Meeting

The extraordinary IEA Governing Board meeting was chaired by U.S. Secretary of Energy Jennifer Granholm who is the current Chairman.

The meeting was openly partisan, showing solidarity with the people of Ukraine and their democratically elected government against Russia’s lack of recognition of Ukraine’s sovereignty and territories. According to the press release, the IEA Ministers noted with concern the energy security impacts of the egregious actions by Russia and voiced support for sanctions imposed by the international community in response.

What Else?

The IEA Ministers noted that Russia’s invasion comes against a backdrop of tight global oil markets, heightened price volatility, commercial inventories that are at their lowest level since 2014, and a limited ability of producers to provide additional supply in the short term.

IEA members hold emergency stockpiles of 1.5 billion barrels. The announcement of an initial release of 60 million barrels, or 4% of those stockpiles, is equivalent to 2 million barrels a day for 30 days. The coordinated drawdown is the fourth in the history of the IEA.

Russia is the world’s third-largest oil producer and the largest exporter. Its exports of about 5 million barrels a day of crude oil are roughly 12% of all global trade. Russia’s 2.85 million barrels a day of petroleum products are approximately 15% of global refined product commerce. An estimated 60% of Russia’s oil exports go to Europe and another 20% to China.

IEA Ministers also discussed Europe’s significant reliance on Russian natural gas and the need to look to other suppliers. On Thursday (March 3), the IEA Secretariat will release a 10-Point Plan for how European countries can reduce their reliance on Russia.

Paul Hoffman

Managing Editor, Channelchek

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