Crude oil analysis: IEA’s potential record oil reserves release and what it means for 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. Our crude oil analysis suggests the potential impact of the IEA’s announcement is likely to be limited on prices.

 

 

Crude oil analysis: Flows through Strait of Hormuz is the issue

 

At the heart of the problem 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.

 

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.

 

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.

 

Technical crude oil analysis: Brent testing $90

 

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 the crude oil price. 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.

 

In a nutshell

 

Today’s potential announcement of crude oil release from strategic reserve is likely prove temporary unless we see a meaningful resolution to the Strait of Hormuz situation, which remains a key geopolitical risk for global oil supply. For now, our crude oil analysis suggests the risks to prices are tilted to the upside, but this remains a headline-driven market. Every new development tied to the Iran conflict has the potential to swing prices sharply in either direction, as markets try to gauge how long the disruption could last. Trade oil with extreme care and always ensure you have sound risk management in place.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R