IEA Proposes Record Release of Oil Reserves

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A key day for oil markets as countries consider a massive release from their strategic reserves. Plus, how some of the biggest hedge funds got caught off guard by the war.

Caitlin McCabe (0:43)

These are considered sort of the first-in-class hedge funds in the industry, and they each lost a billion or more for the week.

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And the AI boom continues powering up shares of Oracle. It's Wednesday, March 11th. I'm Luke Vargas for The Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today.

It's the scoop that has the business world talking. The Journal's Matthew Dalton reports that the International Energy Agency has proposed its largest-ever release of oil reserves in an effort to tame a recent run-up in crude prices with a decision expected today. To discuss this potentially historic market intervention, we've got Matt on the line with us from Paris today. Matt, give us the details of this proposal and how it came about.

Matthew Dalton (1:34)

So, the headline figure is a release of 400 million barrels of oil onto the market by the 32 member countries of the International Energy Agency. It would be the largest release by quite a bit that the agency has ever coordinated. It more than double what it put onto the market in 2022 when Russia launched its full scale invasion of Ukraine. This is meant to address a scenario that is kind of what the IEA was created for, which is a catastrophic event on the oil market and that's what is happening right now with the near complete closure of the Strait of Hormuz due to Iranian attacks. This came together very quickly because IEA member countries were pretty surprised by the whole war itself. They weren't involved in the planning, this is a US-Israeli operation, and they had to scramble to put together a plan, which they have, and it's not a done deal yet. We'll see what happens today.

Luke Vargas (2:30)

You keep mentioning IEA member countries. There are several dozen of them, but presumably these reserves are not evenly distributed. Whose oil are we mostly talking about here that would hit the market?

Matthew Dalton (2:40)

The biggest share will come from the United States and its Strategic Petroleum Reserve as the largest oil consumer of the 32 member countries. It thus has the biggest responsibility to put oil onto the market. The US quantity will be less than half of what ultimately hits the market, but it'll be close to half. And Japan is also a big consumer and thus will need to put a significant quantity of oil onto the market. The big European economies, Germany, UK, France, will also be big suppliers onto the market.

Luke Vargas (3:12)

Rebecca, just before we hit record, Matt confirmed that the release we're talking about here could be 400 million barrels. You said, oh wow, tell us about a release of this magnitude. What would it mean for oil markets?

Rebecca Feng (3:23)

It's significant because previously colleagues and I did calculations on just how much reserve IEA members have. They have about 1.2 billion barrels in public stocks and another 600 million in commercial ventures, so that would in total 1.8 billion barrels would roughly last about 124 days with the lost supply from the Gulf. So now if they're looking at a potential 400 million barrels of release that would back them a little calculation that would probably satisfy about 30 days of lost supply from the Gulf, it shows the magnitude of the problem. And kind of looking back on price action, this morning we're seeing Brent and WTI both climbing. It kind of reminds me of an earlier incident when March 2022, when IEA released barrels during the beginning of the Russian-Ukrainian War. Price actually rose as well in the first week after the decision. And that's kind of a sign of like traders looking at the numbers and thinking, my, like maybe the situation is actually much worse than we thought. And that's why price initially jumped and we're kind of seeing the same so far this morning.

Luke Vargas (4:31)

Okay, I hear what you're saying. An intervention this severe maybe signals to the market things are worse than many people realize so that could explain the price reaction we're seeing. But there are other jitters we're seeing, supply related concerns coming out of the Gulf this morning as well.