Nations agree to release 60m barrels of oil amid war

All 31 member countries of the International Energy Agency, IEA, have agreed to release 60 million barrels of oil from their strategic reserves “to send a strong message to oil markets” that there will be “no shortfall in supplies” as a result of Russia’s invasion of Ukraine, the group said Tuesday.

The IEA board made the decision at an extraordinary meeting of energy ministers chaired by United States Energy Secretary Jennifer Granholm. Besides the United States, other members of the organisation include Germany, France, the United Kingdom, Japan and Canada.

IEA members hold emergency stockpiles of 1.5 billion barrels of oil. The release amounts to 4.0 per cent of stockpiles, or roughly two million barrels per day for 30 days.

“The situation in energy markets is very serious and demands our full attention,” IEA executive director Fatih Birol said. “Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery.”

Russia plays an outsized role in global energy markets as the third-largest oil producer. Its exports of five million barrels of crude per day amount to about 12 per cent of the global oil trade. Some 60 per cent goes to Europe and another 20 per cent to China.

So far, US and European sanctions have not barred oil or gas exports and have included exceptions for transactions to pay for oil and gas. Western leaders are reluctant to restrict Russian oil exports at a time when global energy markets are tight and high prices are fuelling inflation in developed economies.

Oil prices soared

But Russia’s invasion has still shaken markets globally. On Tuesday, oil prices soared, with US benchmark crude surpassing US$100 per barrel – its highest price since 2014.

It’s only the fourth time in history that the IEA has done a coordinated drawdown since the reserves were established in the wake of the Arab oil embargo in 1974.

From the US perspective, the price of crude oil determines a big portion of what drivers pay to fill up their cars with gasolene. The national average for a gallon of gas is US$3.61, which is 26 cents more than a month ago and 90 cents more than a year ago, according to motor club federation AAA.

In November, US President Joe Biden announced a release of 50 million barrels of oil in coordination with other energy-importing countries, but the measure had only a fleeting impact on oil prices, which have continued to rise.

Should there be a loss of oil and natural gas from Russia, the US appears unable to quickly increase production of oil and natural gas, while OPEC-plus countries have yet to publicly commit to substantially more production.

Domestic oil and gas companies are dealing with tight supplies of rigs, sand, truckers and labourers needed to drill for oil and gas, said Jen Snyder, managing director at Enverus, an energy analytics firm. She noted that one supplier said its most modern and efficient rigs are all contracted out through the end of the year.

“All these constraints can be bridged, but it takes time,” Snyder added.

Natural gas supplies in Europe have been extremely tight. But gas producers in the US cannot quickly export more gas into the global market. That’s because to ship natural gas overseas, it has to be cooled and converted into liquefied natural gas at LNG export facilities, and in the US those facilities are operating at capacity.

– AP