G7 Leaders Weigh Strategic Oil Reserve Releases as Crude Tops $100
The Group of Seven industrialized countries are to discuss plans to release oil from strategic reserves as the price smashed through US$100 a barrel and reached almost US$120 at one point in early European trading on Monday.
In London, the Brent futures price for May contracts rose almost 26 per cent to US$116.38. If they remain above US$112.17, they will mark the biggest single-day climb since the futures began trading in 1988.
The prospect of a joint release of oil reserves pushed down Brent spot prices from their Monday peak of US$119.50. But in midmorning London trading, Brent was still up 13 per cent over Friday’s close, at US$105. Oil was under US$60 in December.
Natural gas prices climbed even faster. They were up 30 per cent because the Strait of Hormuz, through which 20 per cent of liquefied natural gas (LNG) travels by ship, remained all but closed. The energy shock – and the prospect of slowing economies – hit the markets again, with the FTSE 100 down 1.3 per cent and Germany’s DAX off by 2 per cent in morning trading.
Read More On Our Daily Stock Market Reports – Major Indexes Struggle as Oil Price Surges
Economists published a flurry of notes on Monday that predicted no quick reversal of energy costs as the Israeli and U.S. attacks continue on Iranian oil infrastructure, including fuel depots, turning the Tehran skies black, and Iran responds in kind by hitting oil and gas sites in the Persian Gulf area.
“The market is still pricing predominantly geopolitical risk, and the cumulative build in geopolitical risk premia since early January is roughly US$50/bbl, the highest level ever, reflecting a situation that is totally unprecedented,” Ben Hoff and Michael Haigh of Société Générale Commodities Research said in a morning note.
The appointment on Sunday of Mojtaba Khamenei, the son of the slain Iranian supreme leader Ali Khamenei, as his father’s successor is seen as an act of defiance against U.S. President Donald Trump, who described Mojtaba as a “lightweight.” Mojtaba is close to the Iranian Revolutionary Guards, who supported his secret-ballot election – a signal that Mr. Trump’s demands for Iran’s “unconditional surrender” will be ignored.
Throughout the Gulf, the inability of tankers to travel through Hormuz, the narrow strait that connects the Gulf to the Indian Ocean, meant that oil and LNG production was being curtailed or shut down.
The sudden shortage of oil and LNG was rippling through all the energy markets. Prices for benchmark Newcastle thermal coal – used to power electricity generating plants – is up about US$20 a tonne, to US$143, since the Israeli and American attacks began on Feb. 28. In parts of Europe, coal burners are being fired up again due to the LNG shortage.
G7 finance ministers, in an emergency meeting, will discuss releasing millions of barrels of oil from strategic reserves to try to bring down prices before a price shock hits consumers and industrial users, potentially stocking inflation.
The ministers, along with Fatih Birol, executive director of the Paris-based International Energy Agency, are to hold the call at 8:30 a.m. ET. The 32 members of the IEA, including Canada, hold about 1.2 billion barrels of oil in storage in tanks, oil tankers and salt caverns. Some reports said that the governments are mulling a release of as many as 400 million barrels.
The emergency stockpiles were created in 1974, after the Arab oil embargo quadrupled oil prices. The oil reserves were last tapped in 2022, when Russia’s full-scale invasion of Ukraine pushed prices to US$130 a barrel, up from the pre-invasion price of less than US$100.
The potential flaw in the mass release of oil is that U.S. petroleum reserves are unusually low.
The U.S. Department of Energy reported that the four main caverns along the Texas and Louisiana Gulf of Mexico coast hold 416 million barrels of crude, well below their capacity of 714 million barrels. Last year, Mr. Trump, in his presidential inauguration speech, promised to “refill our reserves right up to the top again” but never did.
The current reserves represent about 20 days of U.S. oil consumption.
Last Thursday, the American Automobile Association (AAA) reported that the national average price for a gallon of gasoline had jumped by 27 US cents to US$3.25. But that price was calculated on oil at about US$75 a barrel.
Since then, the price has climbed well above US$100, suggesting that the next AAA update will see a substantial increase in fill-up costs, intensifying the “affordability crisis” that Mr. Trump vowed to fix.
This article was first reported by Globe and Globe
