Crude oil: Record oil reserves release eyed, but will it stabilise prices
Crude oil: Record oil reserves release eyed, but will it stabilise prices
With Iran continuing to threaten vessels passing through the Strait of Hormuz, the focus will be on how the US and other major economies will ensure the flowing of crude oil via this narrow passage and alternative routes to help stabilise prices. Chief among the measures considered is the coordinated release of oil reserves. According to some reports, the International Energy Agency (IEA) is considering what would be the largest release of emergency oil reserves on record to the tune of 300-400 million barrels. It is hoped that the move could help keep a lid on oil volatility in the near term. But whether that will do much more than buy the market some time remains to be see. The real issue is the disruption to supply flows, and the longer that continues unresolved, the higher oil prices are likely to go if the Iran war continues.
Crude oil flows through Strait of Hormuz is the real issue
At the heart of the problem for crude oil prices is the disruption around the Strait of Hormuz, a critical artery for global oil shipments. Reports suggest the IEA is preparing to release more than the 182 million barrels deployed in 2022 following the Russian invasion of Ukraine. The intention would be to offset at least part of the roughly 20 million barrels per day believed to be affected by the blockade — potentially covering around 10 days of lost flows.
If the release is large enough, it could temporarily cap the upside in oil prices over the coming sessions. But traders know full well that tapping strategic reserves is only a short-term fix. The market’s real concern isn’t the amount of oil sitting in storage — it’s the flow of barrels moving through global supply chains.
There’s also a longer-term complication. Strategic reserves are emergency buffers, not permanent supply sources. If the conflict drags on and those reserves are drawn down significantly, they’ll eventually need to be replenished. In that scenario, the IEA’s intervention could end up amplifying future demand for crude rather than easing it.
What happens if oil goes above $100 again?
Put simply, if the Strait of Hormuz remains closed for an extended period and emergency stockpiles begin to thin out, the risk is that oil prices could climb far higher than they otherwise might have. A sustained move above $100 could once again put pressure on equity markets, and we may also see currencies that rely heavily on energy imports—such as the EUR USD exchange rate—come under pressure.
Because of that risk, markets may not react with much sustained downside even if the release is confirmed. In fact, there’s a strong chance that traders have already priced in at least part of the announcement. In other words, any immediate dip in oil could prove fairly shallow unless we see genuine progress on de-escalation.
Brent technical analysis
From a technical point of view, Brent crude has been trying to establish a base around the $80 to $85 per barrel range over the past day or so, and it looks like it is now ready to push higher again. So far, it’s doing a fairly good job holding that area. On the 1-hour chart, we can see that Brent has broken its short-term bearish trend line, which is a technically bullish development. This suggests we could start to see renewed technical buying interest as more resistance levels begin to break down.
The key level to watch today is around $90, which is proving to be a pivotal level for Brent crude. A clean break and hold above that level could initially open the door for a move towards $95, with $100 acting as the next upside target.
The $100 per barrel level is psychologically important. If prices begin climbing back above that threshold, things could start to get interesting. A sustained move above $100 could once again put pressure on equity markets, and we may also see currencies that rely heavily on energy imports—such as EUR/USD—come under pressure.
On the downside, the $80 level is now very important. It has been tested several times in recent days and, so far, it has held. However, a break below $80—perhaps triggered by a large increase in the release of IEA strategic stockpiles—could lead to significant short-term selling pressure. In that scenario, Brent could potentially drop toward the $70 area.
Trader | Analyst | TradingCandles.com
e: Fawad.Razaqzada@TradingCandles.com
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