Skip to main content

Despite the injection of stop-gap supplies, West Texas Intermediate oil jumped 8 per cent to settle at US$103.41 a barrel on Tuesday, a nearly eight-year high.ADREES LATIF/Reuters

Western countries agreed on Tuesday to release 60-million barrels of oil from their emergency stockpiles in an effort to tame oil prices that have surged in reaction to Russia’s invasion of Ukraine. But the announcement failed to constrain energy markets.

The measure, co-ordinated by the International Energy Agency, is aimed at stabilizing prices that were already rising sharply this year as economic recovery from the depths of the pandemic propelled demand. Commercial crude-oil inventories are at their lowest since 2014, and producers have limited ability to boost output in the short term, the IEA said.

Despite the injection of stop-gap supplies, West Texas Intermediate oil jumped 8 per cent to settle at US$103.41 a barrel on Tuesday, a nearly eight-year high.

The collateral costs of Western sanctions on Russia

Oil prices surge over 7% as global crude reserve release disappoints

The emergency release of oil represents the latest co-ordinated action in response to President Vladimir Putin’s aggression in Ukraine. Western countries have imposed an unprecedented series of economic sanctions against Moscow, including freezing the Russian central bank’s foreign-exchange assets and barring several of the country’s banks from the global financial system’s primary mode of communication.

However, there has been no global boycott of Russian oil exports, which amount to about 4.5-million barrels a day. U.S. President Joe Biden and other leaders are concerned that removing the supplies from the market would fuel higher inflation and be as painful to their economies as it would be to Russia’s.

Insurance policy

Western powers, co-ordinated by the International Energy

Agency, agreed to release 60 million barrels of oil from their

emergency stockpiles to help tame oil prices that have surged

above US$100 a barrel in response to Russia’s invasion of

Ukraine. The United States will supply the largest share from

its Strategic Petroleum Reserve. The SPR is a series of 60

underground salt caverns that can hold up to 713.5 million

barrels of oil.

U.S. Strategic Petroleum Reserve

SPR cavern

Surface

The typical storage cavern

is about 777 metres tall with

a diametre of 61 metres

777 m

CN Tower

Toronto

553 m

Willis Tower

Chicago

443 m

Washington

Monument

Wash., D.C.

169 m

Caesars

Superdome

New Orleans

83 m

690 m

the globe and mail, Source: u.s. department

of energy

Insurance policy

Western powers, co-ordinated by the International Energy Agency,

agreed to release 60 million barrels of oil from their emergency

stockpiles to help tame oil prices that have surged above US$100 a

barrel in response to Russia’s invasion of Ukraine. The United States

will supply the largest share from its Strategic Petroleum Reserve.

The SPR is a series of 60 underground salt caverns that can hold up

to 713.5 million barrels of oil.

U.S. Strategic Petroleum Reserve

SPR cavern

Surface

The typical storage cavern

is about 777 metres tall with

a diametre of 61 metres

777 m

CN Tower

Toronto

553 m

Willis Tower

Chicago

443 m

Washington

Monument

Wash., D.C.

169 m

Caesars

Superdome

New Orleans

83 m

690 m

the globe and mail, Source: u.s. department

of energy

Insurance policy

Western powers, co-ordinated by the International Energy Agency, agreed to release 60 million barrels of

oil from their emergency stockpiles to help tame oil prices that have surged above US$100 a barrel in

response to Russia’s invasion of Ukraine. The United States will supply the largest share from its Strategic

Petroleum Reserve. The SPR is a series of 60 underground salt caverns that can hold up to 713.5 million

barrels of oil.

U.S. Strategic Petroleum Reserve

Surface

SPR cavern

777 m

The typical storage cavern

is about 777 metres tall with

a diametre of 61 metres

CN Tower

Toronto

553 m

Willis Tower

Chicago

443 m

Washington

Monument

Washington, D.C.

169 m

690 m

Caesars

Superdome

New Orleans

83 m

the globe and mail, Source: u.s. department of energy

The United States, as well as countries that are net importers of oil, have 1.5-billion barrels of oil for emergency use as a key tenet of their IEA membership. The plan equates to two million barrels a day for the next 30 days, the largest share of which will come from the U.S. Strategic Petroleum Reserve (SPR).

Canada attended the meeting, but as a net exporting IEA member with the world’s third-largest oil reserves, this country does not have emergency supplies in storage. Also, Canada is unable to provide additional production to the market at this time, a senior government official said. The Globe and Mail is not identifying the official because they were not authorized to discuss the matter publicly.

The stockpile release came in at the low end of market expectations that were as high as 80 million barrels, and that disappointed traders, and pushed prices higher, said Phil Flynn, senior account executive at Price Futures Group in Chicago. Mr. Biden used the SPR to calm oil prices as recently as last November, with only temporary effect on prices, and so it is becoming less of a surprise, Mr. Flynn said.

“I think they’ve misused the reserve and it’s losing its effectiveness. The reserve is to be used for an emergency or for shock value. Don’t tell everybody there will be a release, come out on the low end of expectations, and expect the market to be impressed. The market’s not impressed,” he said.

“While the oil is going to be welcome and the world is going to eat it up, I don’t think it’s going to stop the price increases.”

The drawdown of emergency barrels is the fourth in the history of the Paris-based IEA, which was created in 1974 to co-ordinate energy supplies as the West struggled with the Middle Eastern oil embargo.

“I am pleased that the IEA has also come together today to take action,” executive director Fatih Birol said in a statement. “The situation in energy markets is very serious and demands our full attention. Global energy security is under threat, putting the world economy at risk during a fragile stage of the recovery.”

Members of OPEC+ are slated to meet on Wednesday to finalize production quotas for April. Analysts are skeptical that the meeting will result in higher-than-expected supply increases, as the members are already struggling to live up to previously agreed additions.

Currently, the group is expected to boost supplies by 400,000 barrels a day, and the IEA move should not affect that, said Louise Dickson, senior oil-market analyst at Rystad Energy.

“However, the pledge from OPEC+ to increase supply is so far a paper promise, as our supply database indicates that the participating OPEC+ deal members are in fact producing about 800,000 bpd below stated target levels, adding to the shortness in the supply market and further stoking the bullish price environment,” Ms. Dickson said in a market note.


With a report from Adam Radwanski

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.