Status: 08.04.2022 11:24 am
In order to mitigate the effects of the Ukraine war on the oil price, the International Energy Agency releases further oil reserves. It’s the biggest release in history. How long will that be able to lower prices?
By Thomas Spinnler, tagesschau.de
For consumers, the high oil prices have become a massive cost factor, which is beginning to significantly limit the scope for many other purchases and increases general costs significantly. Petrol and fuel prices have been at a very high level for weeks, although they have recently fallen below the record highs of March.
The International Energy Agency (IEA) has now announced that it will release a further 120 million barrels over a period of six months in addition to the 62.7 million barrels (159 litres) of crude oil reserves already released.
Biggest release in IEA history
This is intended to push the crude oil prices, which have risen massively as a result of the Ukraine war, to a level that is more bearable for consumers and more beneficial for the economy. It is the largest release in the history of the IEA. Overall, the IEA has emergency stocks of 1.5 billion barrels.
According to calculations by Commerzbank’s commodities experts, the total reserves released so far by the IEA and the USA should be sufficient to increase the daily oil supply by one million barrels for ten months. “The loss of Russian oil supply of three million barrels a day forecast by the IEA could be compensated for for 100 days,” writes Carsten Fritsch, market observer for the oil market at Commerzbank.
In view of these magnitudes, according to Fritsch, the previously existing fear of a supply shortage can no longer be justified, which is also reflected in the price development.
Falling prices on the oil market
In fact, momentum in the oil market seems to be slowing down at the moment. The price for a barrel (159 liters) of the WTI variety is also falling today and is still around 97 dollars – more than 20 percent less than a month ago. Brent price is also falling and could soon fall back below $100, also down more than 20 percent.
And there are other factors that are currently pointing to some relief in oil prices. Economists fear that the Chinese economy will lose momentum in certain regions due to the tough corona lockdowns. That would reduce the demand for raw materials and thus also relieve the oil price.
Experts believe that a tightening of US interest rate policy by the US Federal Reserve (Fed) will have a similar effect. The US central bankers are currently discussing fighting inflation by raising interest rates faster and more strongly. This in turn could have a negative impact on the economy and also dampen demand for oil.
Short term relaxation
But will the positive effect of the reserve release last? “These measures can relieve the supply situation in the short term, but ultimately shift the problem of shortages into the future, because the reserves have to be replenished,” write the experts at Deka-Bank in their current economic outlook.
In addition, important producing countries are currently enforcing price increases: Saudi Arabia’s state-owned oil company, Saudi Aramco, will raise prices for Asian customers by 4.40 dollars from May onwards compared to March. The oil company is a profit-making machine: last year it more than doubled its net profit to $110 billion. That’s a little more than the stock market value of Volkswagen or Siemens – as annual profit.
From May, Qatar will also increase the prices for the types of oil produced there, as the state-owned company Qatar Energy has just announced.
Billions of additional profits?
In any case, it is at least uncertain to what extent and how quickly falling oil prices will be passed on to consumers: Economics Minister Robert Habeck wants to give the Federal Cartel Office more powers to check high fuel prices so that falling prices also reach consumers.
In a recent study, the environmental protection organization Greenpeace accuses the petroleum industry of making billions from the high petrol and diesel prices. Since the beginning of the war in Ukraine, they have made at least three billion euros in additional profits. The industry responds to this accusation by saying that the companies also have higher expenses, for example due to higher energy costs in the refinery process and additional transport.