The devil is in the details. IEA's record-breaking stockpiling can't quench the current thirst.

Author: Long Yue

Source: Wall Street Insights

IEA announces the largest strategic oil reserve release in history, but the market quickly realizes: what truly determines oil prices is not “how much is stored,” but “how much can be released daily.”

According to CCTV News, the International Energy Agency (IEA) announced on the 11th that 32 member countries have agreed to release 400 million barrels of strategic oil reserves.

In terms of numbers, this is the largest collective release in IEA history. After the Russia-Ukraine conflict in 2022, IEA member countries released a total of about 183 million barrels twice, and this time the scale has doubled. Reports indicate that many countries have disclosed their contributions:

• United States: 172 million barrels
• Japan: about 80 million barrels
• South Korea: 22.5 million barrels
• Germany: about 19.5 million barrels
• France: up to 14.5 million barrels
• United Kingdom: 13.5 million barrels

(图：IEA各成员国的储备量)

But for the energy market, the really critical information has not yet been disclosed — including the release pace, duration, and the ratio of crude oil to refined products. These details are often more important than the total volume itself.

At the same time, the U.S. release is severely delayed. After the President issues the release order, the Department of Energy needs about 13 days to tender, award, and start delivery. Then, crude oil must be transported via pipelines or tankers to refineries and end-user locations. Even if action is taken immediately, the reserves will not truly enter the market until at least the end of March.

Market reactions show that traders are clearly waiting for this information. After the announcement, oil prices briefly fell to around $83 but quickly rebounded, with WTI crude oil returning to above $90.

The real issue: not inventory, but “flow” of supply

To understand why the market remains indifferent to the release of 400 million barrels, it is essential to clarify the fundamental difference between “stock” (inventory) and “flow” (rate of supply).

The pricing anchor in commodity markets is the actual daily physical delivery — the real-time supply and demand — not the static inventory numbers.

The current surge in oil prices is driven by the near halt of shipping through the Strait of Hormuz.

This strait accounts for about 20% of global oil transportation. As the conflict escalates, a large volume of oil in the Persian Gulf cannot be exported normally.

Data from Citigroup and JPMorgan Chase show that the blockade of the strait causes a daily actual loss of 11 to 16 million barrels of oil supply globally. In other words, the global oil market has suddenly lost a supply source roughly equivalent to Saudi Arabia’s production.

Therefore, the core issue is not whether the world “has oil” but whether it can flow to the market.

IEA member countries’ public strategic reserves total over 1.2 billion barrels, with an additional about 600 million barrels of corporate inventories under government oversight. From an absolute quantity perspective, inventories are not scarce.

(As of now, the total strategic petroleum reserves of the Organization for Economic Co-operation and Development (OECD) amount to 1.247 billion barrels, including 935 million barrels of crude oil and 312 million barrels of refined products.)

The real problem is the inability of oil to flow from production sites to markets.

A commodities analyst summarized it in one sentence:

“This is a flow problem, not an inventory problem.”

While releasing reserves can increase inventory supply, it cannot replace the daily global oil trade carried out via shipping.

Simply put, the 400 million barrels released by IEA member countries, if not converted into sufficient daily flow, cannot fill the huge 16 million barrel per day gap.

Release speed is the key variable that determines oil prices

In this context, the market’s most pressing question becomes: How quickly can these reserves enter the market?

Homayoun Falakshahi, senior analyst at Kpler, bluntly states: “The devil is in the details; the key issue is the release speed.”

Currently, the IEA has not announced a unified release pace, only stating that each member country will schedule according to its own circumstances.

Private estimates from major commodity traders suggest that the actual market entry rate of these reserves is only between 1.2 million and 4 million barrels per day.

JPMorgan Chase’s commodities strategist Natasha Kaneva’s estimate is even more pessimistic: The coordinated release rate of the G7 can only reach a maximum of 1.2 million barrels per day.

At this rate, even releasing all 400 million barrels would take nearly a year.

U.S. Strategic Petroleum Reserve: Largest in size but with clear limitations

In this operation, the U.S. is expected to bear the largest share.

U.S. Energy Secretary Chris Wray stated that the U.S. will release 172 million barrels of strategic reserves, with the entire process expected to last about 120 days.

He said in an interview: “This is to buy time during the supply disruptions caused by Iran.”

However, the U.S. Strategic Petroleum Reserve (SPR) itself faces practical constraints.

Currently, the U.S. SPR holds about 415 million barrels, only about 60% of its maximum capacity. After releasing 180 million barrels following the Russia-Ukraine conflict in 2022, inventories have significantly decreased.

Theoretically, the maximum sustainable release capacity of the U.S. SPR is about 4.4 million barrels per day. But a 2016 Department of Energy assessment indicated that actual sustainable release capacity is only between 1.4 and 2.1 million barrels per day.

In 2022, the actual release rate even did not exceed 1.1 million barrels per day.

Deadly time lag

Shallow water cannot quench a nearby fire. Besides the slow pace, the release also faces a huge time lag.

From policy implementation to actual physical flow, a complex commercial process is involved. After the President issues the release order, the Department of Energy needs about 13 days to tender, award, and begin delivery. Then, crude oil must be transported via pipelines or tankers to refineries and end-user locations.

This means that even if the process is started immediately, it will take until the end of March for SPR crude oil to truly enter the market and form effective supply. During this period, the 16 million barrel daily supply gap will continue to accumulate. JPMorgan Chase estimates that by the end of March, the cumulative oil deficit caused by geopolitical conflicts will exceed 100 million barrels. The daily replenishment of only 1.2 million barrels is like a drop in the bucket.

More critically, the blockade of the Strait of Hormuz is causing upstream repercussions. Crude oil cannot be exported, and the oil tanks along the Persian Gulf are filling rapidly. Once storage reaches capacity, oil-producing countries will be forced to shut down wells.

Bloomberg reports that major oil-producing countries such as Saudi Arabia, the UAE, Iraq, and Kuwait have already begun significant production cuts, totaling about 6.7 million barrels per day, roughly 6% of global output. Moreover, each additional day of Strait closure will further increase this number. This transforms a logistical transportation issue into a capacity destruction problem.

More like a “stability signal” for the market

From an investor’s perspective, this IEA action is more like a policy stability signal.

On one hand, it conveys that major consuming countries are willing to intervene jointly to influence energy prices, attempting to lower risk premiums.

On the other hand, it buys time for the market — waiting for the Strait of Hormuz shipping to resume.

But if the blockade persists, the reserve releases will struggle to truly bridge the supply-demand gap.

As one energy trader put it:

“Strategic reserves can buffer shocks but cannot replace normal global oil trade.”

Therefore, the true significance of this record-breaking release plan for the market still hinges on one key question:

When will the Strait of Hormuz reopen?