Oil prices surged to fresh seven-year highs on Tuesday as an agreement from countries around the world to release 60 million barrels of emergency oil failed to ease supply fears gripping energy markets.
“The bottom line is this is not enough to cool off the market. It’s a bit of a band-aid solution,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.
The International Energy Agency announced Tuesday that member countries have agreed to release 60 million barrels of oil from emergency reserves to send a “strong message to global oil markets that there will be no shortfall” as a result of Russia’s invasion of Ukraine. About half of that total – 30 million barrels – will come from the US Strategic Petroleum Reserve, sources told CNN.
The oil market was not impressed. US crude spiked about 10% Tuesday morning to an intraday high of $105.14 a barrel. That’s the highest level since 2014. Brent crude, the world benchmark, soared about 8% to $105.40 a barrel.
“You need to super-size the numbers,” said Robert Yawger, vice president of energy futures at Mizuho Securities.
Still, energy industry executives and analysts conceded the Russia-Ukraine crisis is precisely what the SPR is designed for: to cushion the market against national security-related supply shocks. “It’s better than doing nothing,” Yawger said.
But it’s not a long-term solution. There is a finite amount of oil in emergency reserves. In fact, the SPR holds the least amount of oil since September 2002, according to government statistics.
Matt Smith, lead Americas oil analyst at Kpler, said emergency releases are arguably bullish from a market sentiment standpoint.
“Every time the US announces a release from the SPR,” Smith said, “it’s one less bullet that it has to be able to use later on.”