Oil: Reserve release impact weighed against Hormuz risk – MUFG

FXStreet Insights Team FXStreet

MUFG’s Senior Currency Analyst Lloyd Chan highlights that Brent Oil has risen above US$90/bbl as supply risks from Iraq and the Strait of Hormuz overshadow the International Energy Agency’s record 400 million barrel emergency reserve release. The report stresses that the scale and pace of the release are small relative to global demand and potential disruption, limiting downside for Oil prices.

IEA release versus Hormuz disruption

"Brent oil prices fluctuated and rose above the US$90/bbl mark, while risk sentiment took some hit, and this came despite the announcement of oil reserves release by the International Energy Agency. Oil prices also rose as reports suggest Iraq’s oil ports have completely stopped operations due to targeting of two tankers within Iraq’s waters."

"In particular, the IEA agreed to discharge 400 million barrels from emergency oil reserves, its largest-ever release, in order to help contain a price spike driven by the Middle East war. For context, this number far exceeds the 183 million barrels that member states released in 2022 after Russia invaded Ukraine."

"The details of the pace of release will be crucial to gauge the market impact, but ultimately the disruption from the Strait of Hormuz is so large that it dwarfs the oil reserve release."

"To put the 400 million barrels in context, it makes up around just 4 days of total daily global demand for oil. In addition, when compared with the Strait of Hormuz where 20% of global seaborn oil passes through daily (~20mn barrels/day), and where there is significant disruption still, it is difficult to replace this longer-term."

"If we assume that the other IEA members follow the US administration’s announced plan to release oil reserves over 120days, this would imply daily flow of 3.3 million barrels a day from the 400 mn barrels release, still not entirely enough to cover the possibly 10-13mn barrels/day shortfall from the Strait of Hormuz (and after accounting for pipelines to divert oil supply away from SoH such as Saudi Arabia’s East West pipeline)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

Japanese Yen weakens to two-year lows, targets 162.00

USD/JPY extends its advance well north of the 161.00 barrier on Thursday, always on the back of the continuation of the US Dollar's post-Fed rebound and despite warnings from the BoJ of a potential intervention at any time. Next on the upside for spot comes the July 2024 peak in levels just shy of 162.00 the figure.

AUD/USD trims gains, challenges 0.7000

AUD/USD now alternates gains with losses just above the key 0.7000 level ahead of the opening bell in Asia. The pair clinches its third consecutive daily retracement, always on the back of the persistent move higher in the Greenback, particularly following the Fed’s hawkish hold on Wednesday.

Gold drops to daily lows near $4,200

Gold struggles to attract buyers on Thursday, trading closer to the $4,200 mark per troy ounce. The yellow metal adds to Wednesday’s pullback and slips back to multi-day lows in response to the stronger US Dollar following the Fed’s hawkish hold on Wednesday.

XRP vulnerable below key EMA resistance levels

Ripple (XRP) ticks down below $1.20 with short-term support at $1.16 intact at the time of writing on Thursday. An early-week rally was rejected at $1.28, weighing on sentiment as traders broadly de-risked.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.

The next big AI trade may not be about chips or software

Artificial intelligence has already created some of the biggest winners in modern market history. Chipmakers have surged, data centre construction is booming, and electricity demand forecasts are changing globally.