G7, IEA reportedly considering joint release of emergency Oil reserves
As a significant share of global crude flows at risk, the International Energy Agency (IEA) is reportedly discussing a coordinated release of emergency oil reserves among member countries to stabilize markets. Such actions are typically deployed when major supply disruptions threaten global energy security.
The release of emergency oil reserves by countries coordinated through the IEA can add temporary supply to the market and prevent a sharp spike in oil prices.
On Japan’s front, the Ministry of Economy, Trade and Industry has instructed domestic oil storage bases to prepare for release as the Iran crisis has cut supply from the Middle East. Interviews with oil refiners will also be conducted to assess domestic supply and demand.
Qatar’s Energy Minister Saad al-Kaabi said that the country expects all Gulf energy producers to shut down exports within weeks and drive oil to $150 a barrel, the Financial Times reported on Friday. The energy disruption continues to become more widespread. It is being reported that Bahrain’s major oil refinery was struck by an Iranian drone attack. This is one of the oldest and most strategic energy hubs in the region.
Meanwhile, the United Arab Emirates (UAE) and Kuwait started reducing oil production as the closure of the Strait of Hormuz ripples through energy markets and affects global supply. Additionally, Saudi Arabia’s Defense Ministry stated that state-controlled Saudi Aramco’s Ras Tanura loading terminal and refinery complex was targeted by an Iranian drone Wednesday. A wider conflict in the Middle East and cut crude oil output boost the WTI price above $100 per barrel, the first time in four years.
Market reaction
At the time of writing, the West Texas Intermediate (WTI) is up 14.00% on the day at $100.92, reversing sharply from over three-year highs of $113.28 reached earlier in the Asian session.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
